Dublin office rents will climb to peak pre-recession levels within the next two years as an acute lack of supply in parts of the capital drive prices higher.
The cost of renting office space in the capital has risen 28% this year to just over €480 per square metre while vacancy rates in the central business district of areas such as Dublin 2 and Dublin 4 are less than 2%.
The growth in rental markets comes amid strong investment volume across all commercial property sectors in the capital — including retail premises — which threatens to reach €4bn and surpass the previous peak of €3.6bn, according to research carried out by Davy Stockbrokers.
Although the market is following previously seen trends, the rental boom period could be longer and the peak more pronounced than previously seen, according to Savills director of research, John McCartney.
The long lead-in period from the time at which it becomes economically viable to start office construction projects to their completion poses difficulty for the market and causes prices to increase, he added.
“Where we are now, the problem is that there is no building going on. Natural growth causes the market to tighten, competition for prime office space tightens and rents creep up. The difficulty is due to the long construction lag; commencements don’t become completions for two years and rents rise quite explosively in that time.”
While highlighting previous multi-year growth periods similar to the cycle the market has now entered, such as in the late 1970s and early 1980s, he warned that the boom period could be extended in this cycle due to the scarcity of funding that currently exists.
As the level of new constructions is very low in the capital, at least two more years of strong rental growth can be expected while Dublin is in the unusual position of having fewer new office builds than Cork, he added.
Davy indicated that with Ulster Bank and Nama likely to continue the supply of commercial property in the final quarter, with Nama bringing five real estate portfolios to market alone, investment volumes look set to remain strong into 2015.
© Irish Examiner Ltd. All rights reserved