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Strong occupier demand for Dublin offices reflected in high level of pre-let deals

A busy start to 2018 was observed in the Dublin office market, with 71,200 sq m of space occupied in the first three months of the year. A very strong quarter was also recorded for signed, reserved and pre-let deals, resulting in pre-committed space now standing at its highest level in the current cycle.

Commenting on the quarter, Ronan Corbett, Head of Offices, Cushman & Wakefield said; “As the Irish economy continues to grow, the demand for office space has grown with it. The continued dominance of the technology sector and the re-emergence of both State and domestic private sector occupiers has been a feature of quarter one. While headline rents have remained relatively steady, if the current rate of take up continues, there will inevitably be pressure on rents in the near to medium term.”

Focusing specifically on the Central Business District (CBD), a 38% uplift in activity was recorded on the previous quarter, with a total of 42,750 sq m taken up. The CBD accounted for 60% of overall Dublin activity.

The largest occupation of the first quarter of 2018 was that of the National Treasury Management Agency (NTMA) taking the entire 13,850 sq m at the first phase of Dublin Landings in the north docklands. The ten-story office block, which was pre-let to the NTMA, completed construction late last year. Quarter one also saw online retailer Amazon finalise its move into the Vertium Building on Burlington Road, Dublin 4. Completing construction in the final quarter of 2017, the entire building which was pre-let to Amazon measures approximately 16,000 sq m.

The current strength of occupier demand in Dublin reflects the positive view of Ireland’s economic performance. This is feeding into the labour market growth story, which is forecast to reach full employment by the end of this year.

The IT/Telecommunications sector continues to rank highest, absorbing 30% of take up in Dublin in the opening quarter and 40% in the CBD. This trend is showing no signs of easing with tech giants such as Amazon, Google, Facebook, LinkedIn and Salesforce all active in the market at present. These players are not only moving within the market, but significantly expanding and swallowing up new and second hand available space.

Some very large lettings propelled the Dublin office market in 2017 and we expect this trend to be sustained for the year ahead. The first quarter saw two occupiers take up over 10,000 sq m of space, while a further four deals over 10,000 sq m in size are currently signed or pre-let, and due for occupation by the end of the year.

Pre-let and pre-reserved space is now at its highest level in the current cycle. In the CBD, approximately 290,100 sq m of space was under construction at the end of March, 46% of which is already pre-committed. Furthermore, an impressive two-thirds of the space due for delivery this year is already accounted for. This is a real indication of the strength of demand and occupiers’ willingness to pre-commit. Pre-lets and lettings mid-construction will continue to be a prominent feature of the market this year, making development funding easier.

Supply levels tightened by 11.5% in the first quarter, to stand at 441,550 sq m at quarter end, representing a vacancy rate of 12.4%. However, when one excludes the significant portion of availability that is either signed or reserved, the net vacancy rate falls to 7.5%. Furthermore, in the CBD, the net vacancy rate declined to 5%, from 5.9% in the previous quarter.

Prime headline office rents in the CBD increased by 4.4% during the first three months of the year, to €646 per sq m, ahead of previous peak levels. CBD rents are expected to remain stable for 2018 alongside the controlled delivery of new stock. In suburban Dublin, rents are achieving up to €323 per sq m, particularly in the south suburbs.