The prolonged shortage of large, good quality office space in Galway to meet tenants’ demand led to yet another subdued quarter for leasing activity. Just 950 sq m of space was taken up in the first quarter of 2018, in three deals. The largest of these was 450 sq m taken up by Galway2020 on Merchant’s Road in the city centre.
Annual take up for the twelve months to quarter one in Galway stood at 7,050 sq m and while higher than the comparable period last year, it remains 48% below the long-run annual average.
A similar scarcity of good quality stock exists in the other regional centres. Cork, recording 19,850 sq m of leasing activity in the twelve months to quarter one, sits 26% below its long-run annual average, while likewise in Limerick, take up amounted to 6,700 sq m in the year to quarter one, 57% below its long-run average.
Commenting on the regional office markets, Patricia Staunton, Head of Cushman & Wakefield Galway said; “The limited supply of Grade A office accommodation is hampering the market both in terms of new office entrants and existing occupiers seeking to expand in Galway. Galway is at a critical stage and if we do not address our supply levels in the short term we will lose our attractiveness to occupiers due to lack of product. On a positive note once Bonham Quay secures planning this will assist in alleviating our supply issues as the scheme will deliver 25,670 sq m of Grade A offices in the city centre.”
Galway continues to have by far the lowest supply of office space of all the regional centres. Following the recent removal of 20-24 Mervue Business Park from available office space in the market, availability in Galway declined by 31% during the first quarter of 2018, to stand at 17,850 sq m. Measuring 7,150 sq m, this office unit had been on the market for over 18 months but it is now being marketed as an industrial unit.
This decline in supply levels in Galway over the quarter has resulted in the corresponding vacancy rate falling to an acute 5.9%, from 8.6% in the previous quarter. Galway is the only market of the four regions which has a single-digit vacancy rate. Looking specifically at the supply of Grade A space in Galway, net of signed and reserved space, just 6,850 sq m was available at the end of March, a decline of 7.1% on the comparable quarter last year. More notably, there were only three Grade A units net available at quarter end, and only one of which was greater than 1,000 sq m in size.
This contrasts to the office markets in Cork and Limerick, where although the supply of large Grade A floor plates remains tight, with a limited number of office schemes under construction, the overall vacancy levels are not quite as severe as that witnessed in Galway. Vacancy rates in Cork and Limerick stood at 11.3% and 18.1% respectively at the end of quarter one.
Just two office schemes are under construction in Galway, measuring a combined 10,800 sq m. With both of these located in the suburbs, namely the refurbishment of No. 1 CityEast (the former Citilimits building) and Block 5, Parkmore East, delivery of these will do little to address the dearth of large office space in the city centre.
Development activity in Cork and Limerick is more optimistic. Approximately 31,250 sq m of space is under construction in Cork, however, only half of this is speculative, while there are also an encouraging number of schemes in the planning pipeline for Cork city. In Limerick, 24,800 sq m in three schemes is under construction, of which 35% was pre-let at quarter end. When complete, these will provide a positive boost to the Limerick and Shannon Free Zone areas.
The shortage of prime stock in Galway led to strong rental inflation in 2017 of 18.4%, with prime rents standing at €296 per sq m at year end, slightly ahead of previous peak levels. Notably this is almost double that recorded at the trough of the market in 2013. Prime rents remained unchanged in the opening months of 2018, with too few transactions in Galway taking place to warrant any deviation from this. Similarly, in the suburbs, there is no transactional evidence to move from €194 per sq m, however, a new level for suburban rents could be set once Block 5, Parkmore East completes construction.
In the comparable regional cities, pre-lets agreed at a new city centre office development has meant that Limerick enjoyed a prime rental level on par with Cork for the first time by the end of 2017, at €325 per sq m. Cork, the strongest regional centre outside of the capital, saw strong demand fuel further inflation during the opening months of 2018, to €355 per sq m. On the back of a continued shortage of large Grade A floorplates, upward movement is forecast in all three cities for the short-medium term. This is most notable for Galway, with an average annual growth rate of 4.4% anticipated for the period 2018-2022.
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Cushman & Wakefield is the commercial partner of the Sherry FitzGerald Group in Ireland.