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Low vacancy rates in the Dublin office market fuels investor demand and sets solid footing for uncertain times ahead

21/04/2020
The commercial property market began 2019 with strong levels of office leasing activity and investment turnover.  However, as the quarter drew to a close both markets entered unchartered territory as the local and global economy addresses the onslaught of Covid-19.

According to the latest research from Cushman & Wakefield, total investment turnover levels reached approximately €525m across thirty-eight deals in the three-month period, a 3% increase on the same quarter last year.

Commenting on the market in the opening quarter, Kevin Donohue, Head of Investment, Cushman & Wakefield Ireland noted; The first quarter of 2020 began very positively with a wall of capital chasing limited stock. However, due to the Covid-19 pandemic many investors have, since the end of March, put their investment requirement on hold until there is greater clarity on the short to medium term impact of Covid-19 on the global economy and local markets respectively.”.

The opening quarter saw the investment market dominated by a strong appetite for the office sector, which accounted for 64% of investment volumes. The largest transaction of the quarter was the acquisition by Google of The Treasury Building, Grand Canal Dock, located in the heart of Dublin’s Central Business District (CBD). The US tech giant, purchased the office asset for approximately €115.5m. In line with Google’s preference to own its own premises, market insight suggests the purchase will enable Google to increase its workforce by up to 1,200 employees.

Other transactions of note include, La Touche House, also located in the CBD, purchased by European based investment manager, Axa IM Real Estate for approximately €84m.

Interest in the office asset class is driven by high levels of leasing activity and particularly low vacancy rates. In quarter one, a total of 45,150 sq m of office space was taken up and an impressive 85,050 sq m was signed in the Dublin office market. At the end of March, only 323,450 sq m of space was available, equating to a vacancy rate of 8.5% and a net vacancy rate of just 4.6%. These rates translate to a 20-year lows.

Commenting on the market, Ronan Corbett, Head of Offices at Cushman & Wakefield; “The Covid-19 situation has thrown the Dublin Office market into uncertain times. However, unlike the impact of the financial crisis of 2008 – 2011, the market is entering this period on a much stronger footing. Prior to Covid-19, the market was experiencing a record low net vacancy rate coupled with robust occupier demand. Dublin is now also a much more diverse place in terms of its occupier mix. However, one sector we do see coming under pressure in the near term is serviced offices / co-working, who have been a big part of recent take-up figures. We anticipate this sector will take a little time to readjust and recalibrate post crisis, but time will tell.”

Given the low vacancy rate, construction activity continues to be an important feature of the market. New completions in the opening quarter totaled just 16,850 sq m. A large volume of space was due to be delivered in the first half of 2020, however these timelines are likely to be extended due to the closure of sites in the current lockdown period. A total of 577,650 sq m was under construction at the end of quarter, of which 54% is pre-let or reserved.

At present, prime rents in the CBD sit at €673 per sq m and are forecast to remain at this level for the remainder of the year. The forecasted yield outlook for the Dublin market in 2020 has seen a slight outward movement of prime yields, similar to the trends across other European markets. Both the rent and yield outlook will be closely monitored over the coming months and will be subject to change as the year progresses.

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