Dublin office rents to exceed pre-recession peak
The chronic lack of development coupled with increased demand from domestic and overseas occupiers is expected to further inflate rental prices in 2015 and through the following year too, analysts at Davy Stockbrokers are predicting.
The residential situation mirrors that of the office market with double digit rental price inflation anticipated over the coming 24 months as an imbalance between supply and demand for prime stock persists.
“While market appetite for office development and refurbishment risk has returned, with 56,000 sq m of office development and refurbishment projects under way in Dublin’s central business district, we expect office rents to continue to inflate over the next two years and pass their 2007 peak,” said Davy head of research Barry Dixon.
Yields on commercial grade A office space in Dublin now look set to fall 5% in 2015 as prices continue to rise faster than rents, however.
In a note covering areas of the Irish and wider global economy, the stockbrokers also outlined their 2015 growth expectations including GDP growth of 3% to 4%.
With GDP still 5% below peak pre-recession levels, there remains significant further room for expansion in the economy with hard-hit, domestic sectors particularly likely to grow in the coming 12 months, including the construction sector which will see a broadening recovery beyond multinational foreign direct investment projects.
The country’s strong export sector will continue to benefit from its exposure to the UK market and specialist sectors such as pharmaceuticals and IT services. The budget outlined last October will help the economy grow rather than acting as a drag, as has been the case in the previous number of years following austerity budgets.
“Another factor helping the Irish economy in 2015 will be a looser budget. In contrast to recent years when budget adjustments included a €6bn package of increases in income and consumption taxes and a broadening of the revenue base through property taxes and other measures, the 2015 Budget included a small €1bn ‘giveaway’ which will leave the household sector marginally better off even after accounting for new water charges,” Mr Dixon added.
The Government is also expected to step up efforts to recoup as much as possible of its banking sector investment with the successful stress tests having provided the necessary catalyst to set out its strategy. Davy expects AIB to seek to redeem €1.6bn contingent convertible capital instruments while, in its estimation, Permanent TSB appears to have leap-frogged above AIB in the pecking order for equity market activity.
