Office rents ‘to near pre-crash levels’

Rents for prime Dublin office space could climb to €600 per square metre within the next year, according to a commercial property researcher.

With vacancy rates for Grade A office space in the prime Dublin 2 and 4 districts standing at just 1.9%, rents which have risen rapidly in the last year are likely to climb higher yet this year and could reach €592 per square metre (€55 per square foot).

Such an increase would represent an increase of more than a fifth, following a 28% rise in 2014, and see rents climb back near the pre-crash peak of €673 per sq m.

CBRE head of research Marie Hunt made the prediction as part of the organisation’s Outlook 2015 report.

Ms Hunt said: “The scarcity of supply of modern office accommodation in Dublin city centre will see sustained upward pressure on rental values until such time as there is an increase in the supply of new office accommodation after 2016.

“We believe prime office rents in Dublin have the potential to reach €592 per square metre by year-end 2015, reflecting more than 22% of an increase year-on-year”.

Another strong year is predicted for commercial property this year following a “phenomenal” and “pivotal” 2014 with a large volume of activity anticipated in terms of asset and loan sales.

Prime yields in the Dublin market have the potential to contract by another 0.5% in the next year, the company stated.

With much of the recovery to date concentrated in the capital, the market outside of Dublin is likely to see improvements in rental and capital values in suburban and provincial locations.

“With eurozone interest rates expected to remain low for the foreseeable future, the relative yield arbitrage (price difference) offered by real estate investment will remain, even if prime yields contract further over the course of the year as anticipated,” Ms Hunt said.

“Ireland’s superior economic prospects compared to the rest of Europe coupled with rental growth expectations augur well for investor appetite.”

Also included in the report is a breakdown of commercial sector activity in 2014, including:

63 hotel sales concluded, totalling more than €341m, with a further €355m of sales in legals at year-end;

38 Dublin pubs worth €44m sold with 19 more properties in legals at the end of 2014;

243 investment transactions of greater than €1m concluded last year totalling €4.58bn;

An office take-up of almost 225,000 square metres through 205 transactions.