Office rents up 10%, but retail rents falling

Office rents are up 10% already in 2014 in Dublin as the office market leads the recovery of the country’s commercial market — but retail’s still a drag, with rents continuing to fall even in major cities like Cork and Dublin.

That’s according to the 2014 Outlook and 2013 Review by the Society of Chartered Surveyors of Ireland.

In the SCSI report, published today, it warns of the dangers to Ireland’s ability to attract Foreign Direct Investment unless substantial new office schemes are urgently facilitated in Dublin and Cork: it calls for finance to be made available for development and fast-track SDZ planning provided, for key projects and sites in places like Dublin’s south docks.

According to the SCSI’s survey and member interviews done with Amarach Research, there was a 23% increase in take-up in the capital’s office market in 2013, with prime office rents increasing in Q1 by 10%, thanks to FDI demand. Dublin city centre modern offices are between €350/€377 psm with a vacancy rate dropping to about 9%. 60% of those interviewed expect rents there to climb higher through 2014.

“Measures must be put in place to ensure that this does not threaten our competitiveness in terms of attracting FDI. Current demand is largely driven by multi-national organisations in the telecoms, media and technology sectors and these increasingly mobile firms cannot afford to wait 24 months for projects to get off the ground,” warned the SCSI’s Eamon Maguire.

In Cork, SCSI regional member Trevor McCarthy said the office market was showing signs of improvement with a shortage of third generation Grade A offices in the city: “to an extent, there’s a two-speed speed office market in Cork City, with activity and some level of demand for large floorplate office space amongst international occupiers”

Noting a final turnaround in the commercial markets, the report points to increased take-up of industrial and logistics space (up 18% in 2013) being largely driven by online companies, and finds capital values in Dublin’s hotel and bar markets recovering, but continuing to decline elsewhere.

Around €1.9bn was invested in the Irish property market in 2013, a threefold increase on 2012 and, according to the SCSI/IPD Index Quarter 4 results, property values rose by 3.2% for the year — the first annual capital growth since 2007; income returns averaged 9.2%.

There has also been local demand for investment property as Irish institutions are active again with growing numbers of private individuals and pension funds investing, and Eamon Maguire comments “there’s strong domestic demand for opportunities up to €5m, with well funded overseas investors proving dominant in the larger size categories.

According to Munster SCSI spokesperson, Trevor McCarthy “the investment property market has been more active in Munster over the last six months. This consists of bank buildings or other large properties coming to the market.

“There is good demand in the €1.5m to €3m bracket where there are institutional/corporate tenants. Demand is coming from private investors, both local and international. Local investors are seeing better value in buildings in urban areas rather than leaving money on deposit in a bank.”

Dublin’s prime retail rents fell in ’13, but shortage of stock “should see rents stabilise. However rents continued to fall in Munster reflecting tough trading conditions in Cork, Limerick and Waterford, the report says, adding “it’s too early to predict a recovery in this sector and there are regional retail schemes around the country which are struggling but we are seeing a stabilisation in rents in the better locations.

The pace of recovery in investment spend, spearheaded by international investors is expected to continue in 2014 with strong demand from the US, Europe and Asia, as well as from Irish REITs.

* Details: www.scsi.ie