There has been very little mention of office delivery outside of Dublin although we are now beginning to see signs of new office development being planned in cities such as Limerick, Galway and Cork, which is welcome.
There has been considerable planning activity in some of the regional cities of late, although with rental values still lagging behind those prevailing in the capital by a considerable margin, the reality is that some of these provincial office schemes won’t be viable to develop in the short to medium term and in most cases will require pre-lettings in order to attract development funding. With evidence of good demand for modern office accommodation in the Cork region and office rents in the city trending upwards, we are likely to see more cranes emerging on the landscape over the next few years.
Research undertaken by CBRE shows there is almost 220,000sq m (2.35m sq ft) of new office stock in 20 individual schemes at various stages of the planning process, with 63% of the potential new supply located in Cork city centre and a further 9% located at Cork Airport. However, only 14% of the total potential stock is physically under construction at present.
Four of the 20 potential office schemes at various stages of the planning process are redevelopment projects, while 16 are new schemes.
According to our research, there is a total of 31,100sq m (334,636sq ft) of office stock currently under construction in the city in three individual schemes. Two of these schemes, namely an extension to the Apple facility at Hollyhill and a scheme at Cork Airport Business Park at Cork Airport, are already spoken for, with Block A of the Navigation Square office development on Albert Quay being the only scheme that will deliver new office accommodation for potential occupiers in the city in the short to medium term. This block, which extends to 13,161sq m (141,162sq ft) is scheduled for completion in 2019 and is likely to attract considerable interest.
A further 15 office schemes have been granted planning permission in the Cork region with seven of these being located in the city centre specifically. Four of the 15 schemes that have a grant of planning permission are redevelopment projects while the remainder are new builds.
Between them, these 15 schemes have the potential to deliver up to 171,696sq m (1.84m sq ft) of additional office accommodation for the Cork region in due course.
However, despite clear evidence of strengthening demand for modern office accommodation in Cork, the reality is that these new schemes won’t proceed to construction phase until such time as funding has been obtained and/or until such time as pre-lettings have been secured.
According to our research, only 5% of the Cork office stock that has a grant of planning (but not yet commenced on site) is anticipated to be ready for occupation by 2018. A further 19% of the stock that has planning permission in place is anticipated to be delivered in 2019.
Almost 54% of stock with planning has an expected completion date of 2020, the largest of which includes a building at City Gate Plaza in Mahon and a new building at the former Murphy Barracks site in Ballincollig. 22% of the stock with a grant of planning is not anticipated to be delivered until 2021 or beyond.
In addition to the three schemes that are under construction and the 15 schemes that have a grant of planning permission but have yet to commence on site, two applications are awaiting a planning decision, namely an application to deliver 9,300sq m at Sullivan’s Quay and 6,984sq m at South Mall. Another scheme that could potentially enter this category in due course is the CIÉ site at Kent Station in the city where an application is expected to be lodged in due course.
It is clear from this analysis that even though there has been an increase in planning activity for new office schemes in Cork in reaction to clear evidence of occupier demand for accommodation in the city, development is anticipated to proceed cautiously with very little new stock coming on stream for occupiers in the short term. It will be 2019/2020 before there is a meaningful improvement in the availability of office stock in the city and this is dependent on the availability of funding to enable schemes that have planning permission to commence construction. This in turn will support further rental growth in the Cork office market over the course of the next couple of years, which will be welcome from a viability perspective considering the differential that exists between prime office rents in Cork and those being achieved in Dublin at present.
According to our research, prime office rents in Cork are currently in the order of €312 per square metre or €29 per square foot while prime offices are generating yields of approximately 6.0% at present.
Brian Edwards is managing director, CBRE Cork