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Ireland: Dublin office market

At a glance Q1 2015
  • Favourable economic conditions ahead
  • Further rental growth expected
  • A very good start in investment sales
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LOM Q3 2014

Favourable economic conditions ahead

GDP growth in Ireland was the most buoyant in Europe in 2014 with 4.8% y/y. In 2015-2016, the Irish economy should move into a softer phase, still supported by solid export growth. Accordingly, employment in the service sector grew by +2.5% in 2014 and is expected to keep the momentum going over the next two years. These labour-market gains positively impacted the office market in Dublin. Totalling over 40,000 m² at Q1 2015, take-up was in line with its 10-year average, although it dropped over Q1 2014 (-10%). In fact, no transaction over 3,000 m² has been signed since the beginning of 2015, showing the robust occupier demand for small and medium-sized premises. The ICT sector remained the main driver for letting activity, as “dot-com” companies (Google, Dropbox) and IT services companies (Paypal, Wipro) represented over 40% of the take-up.

Further rental growth expected

Thanks to the large share of new demand and expansion in take-up, net absorption in the Dublin office market remained strong and led to a further fall in the vacancy rate, now back to its pre-crisis level at around 12%. Most of the vacant office space in Dublin comprises 1980's and older generation buildings. The shortage of new supply in the CBD will be persistent over the next two years; only a few schemes are to be delivered during the period, leading to the re-emergence of office refurbishment, such as No. 1 Ballsbridge (15,600 m²), No. 65 St. Stephens Green (6,900 m²). Combined with the strong demand in the CBD, this office space scarcity should generate more rental growth in the coming quarters. The prime rent strongly corrected upwards since 2011 rising by 27% over the last 12 months to stand at €511/m²/year at Q1 2015.

A very good start in investment sales

Investment in commercial real estate amounted to €1 billion in Dublin in Q1 2015, a new record for a first quarter, boosted by several mega deals in office properties. Overseas players continued to play a major role in Q1 2015 as they represent over 80% of the total investment. They initiated the two largest purchases of the quarter, namely the office portfolio Project Molly bought by Starwood Property Trust and the 4&5 Grand Canal Square in the South Docks bought by Union Investment. Opportunistic players continue to target the Irish market for its remaining “distressed” sales. However, the Dublin office market already saw significant price correction during the recovery and this means more emphasis on value-added and core strategies. The competition for prime properties has pushed office yields down to 4.5%. We expect 2015 to see further brisk activity and direct investment should be well in excess of €3 billion by year end.

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Julien Scarpa
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