Irish Office Market Q1 2015

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1 Irish Office Market Q1 2015

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3 Irish Office Market The following report incorporates a detailed overview of the regional office markets including Dublin, Galway, Cork and Limerick. This market analysis covers occupation levels, vacancy levels and rental performance in each location. Following a stellar year in 2014, in which the Irish office market performed exceptionally well, the opening quarter of 2015 saw a continuation of this trend. A total of 85,400 sq m transacted across the major regional office markets during the opening quarter, a third higher than the corresponding period in 2014 and considerably higher than the rolling quarterly average of approximately 54,000 sq m. Occupier demand during the opening quarter was driven by Dublin and in particular the submarkets of the Central Business District. Demand was sustained in the regional centres during the opening quarter. The Cork office market witnessed the strongest performance and while activity in both Galway and Limerick was running ahead of the long-run average, activity was bolstered by a small number of niche deals. The shortage of good quality large office floor-plates remains a feature of the overall office market. An occupier with a requirement for Grade A accommodation in the city centre is faced with very limited options. The Dublin office market witnessed rising rents in the CBD market during quarter one, fuelled by the acute shortage of Grade A space. The regional centres saw rents remain broadly steady during the three month period. We expect occupational demand to be sustained throughout 2015, particularly as the recovery in the wider economy continues to strengthen and occupier confidence improves. Development across the country remains low and is expected to increase, underpinned by limited availability of Grade A accommodation. The gap between take up and net take up continued to narrow across the regions, indicating that net new demand is now more prominent. Having said that, there still exists movement within the market, particularly in Limerick, where the rate of release of second hand space remains strong. Figure 1 Irish Office Take Up (Sq M) Competition for Grade A space continued in quarter one, supported by strong demand and remained a key feature across all the regional centres. However, the availability of Grade A space remains limited and in turn inhibiting demand and driving demand out of the city centre towards the suburban areas. On the supply side, vacancy rates are down across all the major regional cities, with the exception of Limerick, compared with the corresponding period in The decline in supply has been largely driven by a strengthening of demand during the year. Table 1 Irish office markets - key figures Q Office Market Dublin Galway Cork Limerick Market Stock 3,338,050 Sq M 301,750 Sq M 549,000 Sq M 307,300 Sq M Take Up 64,750 Sq M 8,350 Sq M 8,250 Sq M 4,000 Sq M Availability 450,800 Sq M 22,750 Sq M 99,350 Sq M 71,950 Sq M Vacancy Rate 13.5% 7.5% 18.1% 20.7% Under Construction 63,350 Sq M 2,250 Sq M 15,850 Sq M 25,350 Sq M Irish Office Market Review - Q

4 Dublin Central Business District Strong performance in the Central Business District in the opening quarter of 2015 signalled continued strength in the market. Following a stellar year in 2014, in which leasing activity hit a recovery high, this momentum continued in quarter one of 2015 with the highest first quarter volume of activity since The strength of activity reflects the pace of economic recovery and also renewed confidence among occupiers to execute expansion plans. Furthermore, the opening quarter saw occupier demand for Grade A space continue unabated in the CBD, simultaneously, the supply of Grade A fell to a record low level. Thus, the ongoing imbalance between supply and demand continued into 2015 resulting in upward pressure on rental values during the three month period. 4 Irish Office Market - Autumn Review 2014

5 Dublin Central Business District Take Up The robust leasing activity witnessed in the Central Business District during 2014 has continued into 2015 with take up running at its strongest level recorded in an opening quarter since quarter one of The total volume of take up reached 36,900 sq m in quarter one, almost double the level recorded in the previous quarter and considerably higher than the comparable level of activity transacted in quarter one of Collectively, occupier demand in the five CBD sub markets accounted for approximately 57% of overall total take up across the entire Dublin office Demand remains focussed on the CBD region market in the opening quarter of With considerable improvements in economic conditions, tenant confidence and market fundamentals, the Dublin CBD office market has seen a resurgence in occupier demand, particularly over the past twelve months. Take up in the twelve months to quarter one of 2015 stood at 128,600 sq m, considerably higher than the long-run rolling annual average. However, a key development in the market was the return to positive net absorption. Over the past four quarters, net take up stood at 111,700 sq m, 76% higher than the previous fourquarter rolling average and thus highlighting the significant occupancy gains within in the CBD office market. Volumes are expected to improve steadily over the course of 2015 in line with improving office fundamentals. The opening quarter of 2015 saw continued improvement in the average deal size which rose to 1,300 sq m in the three months to March, this compares to average values of 800 sq m in the comparable quarter in Increased confidence has aided occupiers decision making, particularly in relation to long-term decisions and has resulted in an increase in the number of transactions in excess of 1,000 sq m. Figure 2 CBD Office - Rolling Average Quarterly Take-Up, (Sq M) Irish Office Market Review - Q

6 Dublin Central Business District Take Up 2014 saw demand for Grade A space run ahead of supply for the first time on record. This trend continued into the opening quarter of 2015 as tenant demand for Grade A space was unabated. A total of 31,950 sq m of Grade A accommodation was occupied during the first quarter of the year, equating to approximately 87% of overall take up in the CBD in quarter one and considerably greater than the comparable period in Acute shortage of available Grade A office space The CBD market for Grade A is at tipping point, occupiers preference for best-in-class Grade A accommodation will be constrained going forward as the stock of available Grade A office space continues to shrink rapidly in the CBD. At the end of March, net available Grade A space declined to a record low of just 38,700 sq m. Moreover, further analysis of Grade A demand reveals that Grade A1 remains the occupational preference, accounting for 58% of Grade A activity in the opening quarter. As a result, the best space in the best buildings continues to diminish. At the end of March, there was approximately 28,100 sq m of A1 space unoccupied in the CBD, however, over half of this space is either signed or reserved. As such, the net available Grade A1 space falls to just 13,600 sq m in the CBD and the vacancy rate to 2.9%. This highlights the critically low levels of top Grade A1 accommodation available in the city. Demand remains strong; at the end of quarter one, the quantity of space signed and awaiting occupation in the CBD stood at 12,650 sq m, almost all of which consisted of Grade A accommodation. Furthermore, there was 15,700 sq m under offer in the CBD at the end of March. Within the CBD boundaries, occupier demand was strongest for offices in the Docklands in quarter one of The North Docks absorbed approximately half of the space occupied in the opening quarter, while the South Docks remains a highly sought after location, accounting for a further 22% of take up. Activity was also strong in the Traditional Core area, accounting for an additional 22% of the CBD space occupied in quarter one while the Ballsbridge and Fringe areas absorbed the remaining 4% and 2% respectively. Figure 3 CBD Office Grade A Take-Up and Availability, 2014 (Sq M) 6 Irish Office Market Review - Q1 2015

7 Dublin Central Business District Take Up Figure 4 CBD Office Market - Quarterly Take-Up by Sub Sector (Sq M) Robust activity in the opening quarter of 2015 was bolstered by sustained demand from the IT/ Telecommunications sector, which continues to be the dominant source of demand. The sector maintained its share of activity in the Dublin CBD office market, accounting for 36% of overall take up during the quarter. The more traditional CBD occupants like legal firms, accountants and business service organisations accounted for 21% of activity during the three month period. While the financial sector is still recovering from its post financial crisis, the revival in activity continued in 2015 with the sector s share of the market standing at 16% at quarter end. Figure 5 Dublin CBD Take Up by Tenant Type, Q (%) The CBD market has rebounded faster than developers and other interest groups can supply, thus leading to an inevitable situation of acute supply shortage which is unhealthy. Ronan Corbett Director, Head of Business Space DTZ Sherry FitzGerald Irish Office Market Review - Q

8 Dublin Central Business District Availability 2015 commenced with no slowdown in the erosion of available space in the CBD market. The total quantity of available space continued to diminish during quarter one to stand at 134,600 sq m, representing a 45% decline on the corresponding period in 2014 and considerably below the long-term average. The dramatic decline in supply is also evident in the corresponding vacancy rate which declined to 7.9% at the end of March, down from 14.4% recorded twelve months previously. Furthermore, with approximately 28,400 sq m either signed or reserved at the end of quarter, the true net availability declined to 106,200 sq m, equating to a vacancy rate of 6.2%. Given the strength of demand for Grade A office space, not surprisingly, the stock of Grade A accommodation continues to decline more rapidly. The total quantity of Grade A space stood at 61,600 sq m at the end of quarter one, down 59% on the corresponding quarter in 2014 and equal to 46% of all CBD stock. Furthermore, the Grade A vacancy rate, net of signed and reserved space, fell to a critically low level of 38,700 sq m, reflecting the high volume of Grade A lettings during the quarter. It is important to note that Grade A take up totalled Figure 6 almost 32,000 sq m in quarter one alone. All the market indicators point to an acute shortage of available Grade A office space in the CBD market; the vacancy rate for Grade A offices in the CBD has declined rapidly over the past twelve months and hit a record low of 3.8% at the end of March, net of reserved and signed space. Furthermore, there remains an ongoing shortage of offices capable of accommodating large scale office requirements. The last remaining large office building measuring in excess of 10,000 sq m, Grand Canal Square - Block 5, was signed during the final quarter of Furthermore, of the net stock of available Grade A space, there are only two units greater than 5,000 sq m in size available. The stock of Grade B space also continued on a downward trend during the opening quarter, declining by 24%. Dublin s South Docklands market remains the most supply constrained of the CBD sub markets, with supply declining notably during the quarter to stand at 15,400 sq m, net of signed and reserved space. Availability in the South Docks is critically low, with a present net vacancy rate of 4.7%, the lowest of all the CBD areas. A further analysis of Grade A availability in the South Docks reveals just 11,500 sq m, equating to a vacancy rate of just 3.6%. To put into perspective, take up of Grade A space in the South Docks in quarter one stood at 7,650 sq m. The pressure on supply is unlikely to be relieved in the short term as there is just one development currently under construction in the South Docks, and that is pre-let to AirBnB, thus the area is expected to witness further upward pressure in rents in Dublin CBD Net Availability by Sub Market Q (Sq M) 8 Irish Office Market Review - Q1 2015

9 Dublin Central Business District Availability A similar situation exists in the Traditional Core area, where supply levels declined to 43,400 sq m and the corresponding net vacancy rate to 6%. While supply is highest in this sub market, the dearth of Grade A space is more pronounced with just 7% or 3,000 sq m comprising Grade A space. The equivalent vacancy rate for Grade A space in the Traditional Core area is Grade A vacancy in the Traditional Core area falls to 1.1% 1.1%. The balance of available space, 40,400 sq m, is Grade B accommodation. Pipeline supply in the CBD remains limited; following the third consecutive year in which no new construction entered the market, the opening quarter of 2015 saw no deviation from this trend. Simultaneously, much of the CBD s prime office available stock, namely Grade A offices, continues to be steadily absorbed quarteron-quarter. Developers have responded to the supply squeeze by pursuing speculative development projects in the CBD, however, there are just 63,350 sq m under construction, with already 41% pre-let and a further 11% reserved. While the first wave of supply, the six story block measuring approximately 6,900 sq m, at 65 St. Stephen s Green, is expected to come to the market in 2015, it is reportedly fully let to leading aircraft leasing company, Aercap. Mounting supply shortages have prompted an increase in construction activity, however, this new phase of development will take time to roll out across the CBD as developers thread cautiously and continue to evaluate market conditions, particularly in relation to speculative development saw significant rental growth, fuelled by a combination of strengthening occupier sentiment and the limited availability of Grade A accommodation. The opening quarter of 2015 saw continued upward pressure on rents, with prime headline rents in the CBD increasing to approximately 530 per sq m at the end of March, up 41% over the course of the past twelve months. Prime rents in the CBD are now just 14% below peak levels recorded at 619 per sq m. There is continued upward pressure on headline rents forecast for 2015, particularly in submarkets within the CBD where vacancy rates are sub equilibrium levels and competition for the remaining Grade A space continues. Furthermore, the development pipeline is expected to stay below average over the next three years, which will put further upward pressure on rents. Figure 7 Dublin CBD Headline Rent, per Sq M (Quarterly) Irish Office Market Review - Q

10 Dublin Region Office Market Take Up The Dublin office market had a very buoyant start to 2015 with strong performance recorded in the opening quarter of the year. Traditionally, the opening quarter is the quietest in terms of take up, however quarter one saw a very robust 64,750 sq m transact during the three month period, the strongest opening quarter performance since Performance in quarter one was also considerably higher than the long run first quarter average which stands at 37,450 sq m. The opening quarter of 2015 also marked the sixth consecutive quarter of above average take Above average take up recorded in quarter one ongoing wider economic recovery. up. The strength of demand during the quarter reflects both improving confidence among occupiers together with the Take up in the twelve months to quarter one of 2015 increased appreciably to 241,000 sq m; a comparison with the corresponding period in 2014 reveals a 56% increase in activity. The significant improvement in net take up witnessed in 2014 has been maintained in the opening quarter of 2015 with a continuation in expansion-led demand by occupiers. This is highlighted by the occupation and expansion by Figure 8 Yahoo of 7,850 sq m at the Point Village in the North Docklands. The deal was completed in 2014 and will be the location for their EMEA headquarters. The total volume of net take up stood at 191,100 sq m in the twelve months to quarter one, up 27% on the previous quarter. The positive trend in net take up is underpinned by a combination of strong leasing activity in recent quarters and a stabilisation in the level of second hand space entering the market. Dublin Office Quarterly Take Up, (Sq M) An analysis of the profile of space occupied during the opening quarter reveals a considerable increase in the volume of transactions during the three month period, up 59%. While activity was buoyed by a robust level of deals greater than 1,000 sq m, there was also an uplift in the number of small floor plate transactions. This in turn saw the average size deal decline modestly to 1,050 sq m, compared with 1,150 sq m during the correspond period in The largest transaction of the quarter was the occupation of approximately 7,850 sq m by Yahoo at the Point Village on East Wall Road, Dublin 1. Other notable deals during the year included approximately 5,000 sq m occupied by the OPW at Block R/3 Spencer Dock, also in Dublin 1. Furthermore, there were a number of significant deals signed during the first quarter including the expansion by US IT company Dropbox of approximately 2,700 sq m at its existing office at One Park Place on Hatch Street, Dublin 2. In addition, US pharmaceutical company Parexel have signed approximately, 2,600 sq m at the former Amazon space at 1 Kilmainham Square, Inchicore Road in Kilmainham, Dublin 8. At the end of quarter one, there were a number of high profile companies with requirements for space, including indeed.com, Twitter, Hubspot and Mason Hayes & Curran. 10 Irish Office Market Review - Q1 2015

11 Dublin Region Office Market Take Up Figure 9 Dublin Take Up by Location, Q (%) Figure 10 Dublin Take Up by Tenant Type, Q (%) The increase in occupier demand witnessed in the Dublin office market remained largely focussed on the Central Business District market. The five main CBD sub markets collectively accounted for 36,900 sq m of take up in the opening quarter, equivalent to 57% of overall take up in Dublin. The suburban market accounted for a further 29% of activity while 14% of space was absorbed in the Secondary market. Occupational demand in the CBD may be tempered during the latter part of 2015/2016, however, this will not be as a result of weakening demand but rather by the ongoing acute shortage of available space and in particular Grade A space in the region. As a result, demand in the suburbs and secondary locations are expected to grow as occupiers are increasingly drawn towards these locations. In terms of occupier trends, the IT/ Telecommunications sector continues to lead the way, accounting for 24% of take up during the three month period. That said, the opening quarter of 2015 saw a more balanced quarter in terms of tenant mix with significant gains being made by the State and the Professional and Finance sectors. Notably, the Professional sector accounted for 21% of take up activity while the State reclaimed its status as a key player, absorbing 18% of take up during the three month period. Furthermore, the Financial sector continues to demonstrate increasing gains, absorbing 12% of activity. Irish Office Market Review - Q

12 Dublin Region Office Market Availability Supply levels across the Dublin office market continued to recede, this follows a marked reduction in supply during The opening quarter of 2015 saw the total quantity of available office space fall to 450,800 sq m. A comparison with the corresponding period in 2014 reveals a 30% reduction in supply over the twelve month period. The decline in supply over the quarter can be attributed to robust demand experienced during the quarter coupled with no new additions to the market in terms of new development. The quantum of available space has now reverted to broadly in line with pre-downturn levels as illustrated in figure 11. However, an analysis of the profile of space available in 2008 vs 2015 reveals that the average size of an office available in quarter one measures 1,550 sq m, compared with 2,050 sq m in Furthermore, the limited availability of top quality, modern space continues to be a key feature of the market, this is particularly evident in the Central Business District area. However, as the supply of large Grade A office suites in the CBD diminishes, coupled with the associated rental pressures, occupiers are increasingly viewing the secondary and suburban markets in search of office space. The ongoing decline in availability is also reflected in the vacancy rate, which declined to 13.5% at the end of March. The past three years have witnessed a rapid erosion of the vacancy rate, declining from the peak rate of 24.2% to a thirteen year low of 13.5%. Taking into account the space currently signed and reserved, net availability declined to 351,500 sq m, reflecting a vacancy rate of 8.7%. The vacancy rate is expected to continue to tighten further over the coming year as demand outpaces new development. There is an acute shortage of available space in the Dublin office market capable of accommodating largescale office requirements. There are just two buildings measuring in excess of 10,000 sq m across the entire Dublin office market, one of which is the former Bank of Ireland headquarters on Lower Baggot Street which is to be redeveloped. An analysis of the spread of overall available space in the office market at the end of quarter one reveals that the suburbs continue to account for the majority of accommodation, 45%. This would suggest that the vacancy rate in this region is greater than the overall market rate of 13.5%. The CBD accounts for a further 30% of the available office space, with the remaining available accommodation, 25%, located in the secondary region. Figure 11 Dublin Office Availability (Sq M) & Vacancy Rate (%) 12 Irish Office Market Review - Q1 2015

13 Dublin Region Office Market Under Construction The total quantity of space under construction increased to 63,350 sq m across six developments at the end of March 2015, up from 37,350 sq m at the end of While the opening quarter saw a number of new developments commence construction, all three developments were pre-let and therefore will have no impact on supply levels in the overall market. In terms of the profile of space under construction, it is important to note that all of the space is concentrated in the CBD area of Dublin. No space completed construction during the quarter thus the total stock of office accommodation remained unchanged at approximately 3,338,050 sq m at the end of March Of the total space under construction, approximately 41% is pre-let with a further 11% reserved at the end of quarter one. This leaves approximately 30,500 sq m of speculative development available at No 1 Ballsbridge and Burlington House, both of which are located in the Ballsbridge submarket of the CBD. Office development in the Docklands is expected to grow as developers have responded to the supply squeeze and a number of high profile developments are currently in the planning process and others which are likely to break ground over the next six to twelve months. In the first quarter of this year Oaktree/ Bennetts received two large planning grants in the south docklands for a combined floor area of 20,800 sq m of office space. Pipeline development looks set to largely remain concentrated in the CBD. Pipeline development is expected to remain below the long run average out to While development activity in the Dublin office market is trending upwards, it remains very limited. Figure 12 Dublin Office Take Up and Completions (Sq M) Irish Office Market Review - Q

14 Dublin Region Office Market Rental Levels Prime headline rents in the Dublin office market continued on an upward trend during the opening quarter of Rents remain led by the CBD area which increased to 530 per sq m at the end of March. Prime rents are up from 520 per sq m in the previous quarter and approximately 41% higher when compared with the corresponding period in While there has been evidence of higher headline rents in the CBD area, these largely reflect niche transactions and not an indicator of a wider trend in the market at present. Rental growth continues to be driven by strengthening demand and unprecedented low vacancy for top Grade A office accommodation in the CBD region. As occupiers preference remains focussed on high quality Grade A buildings, prime headline rents are projected to increase further in 2015 on the back of falling vacancy rates, however, the rate of increase is expected to rise more moderately. Rental pressure driven by unprecedented low supply While 2014 witnessed further polarisation between rental growth for prime CBD and secondary/suburban office accommodation, upward pressure has been placed on specific suburban markets, in particular, the south suburban office market. Occupiers are beginning to seek alternatives in response to the acute shortage in supply in the CBD coupled with rapidly increasing rental levels, this could see demand for suburban offices increase further in While demand was robust in the suburbs during the final quarter, rents have increased steadily. That said, rents can vary significantly depending on location and building specification. The south suburbs continue to see the strongest suburban headline rental levels, particularly in Sandyford where rents range between 172 and 247 per sq m per annum. In the western suburbs, rents typically range between 86 and 150 per sq m per annum. In the northern suburbs, headline rents generally range between 129 and 193 per sq m per annum. Suburban rents, particular south suburban rents, are expected to witness upward pressure during Irish Office Market Review - Q1 2015

15 Galway Office Market Following strong performance over the course of 2014, which saw the Galway office market recovery gain momentum, the opening quarter of 2015 got off to a somewhat disappointing start with subdued demand witnessed during the three month period. Leasing activity in quarter one totalled approximately 8,350 sq m. While the total volume of take up represents a doubling of activity compared with the previous quarter, it comprises just one deal in what was otherwise a subdued quarter. Take up in quarter one boosted by HP occupation Take up was bolstered by the occupation by Hewlett-Packard of its newly constructed innovation centre at Ballybrit, Co Galway. An analysis of take up in the year to quarter one of 2015 reveals a total of 18,600 sq m transacted during the twelve month period, considerably higher than the corresponding period in 2014 and indeed the long-run annual average, thus highlighting the strength of the recovery over the past year. Furthermore, the level of net take up, which measures the change in occupied space, increased notably during the past twelve months reflecting a recovery in expansion-led requirements such as the Hewlett-Packard deal. The suburbs remain the most attractive location for occupiers, accounting for 82% of take up in the year to quarter one, while the share of take up in the city centre stood at 18%. The suburbs continue to command stronger demand on the back of limited availability in the city centre. Tenant demand during the past twelve months remains focussed on Grade A accommodation, accounting for 79% of overall take up. However, Grade A take up is concentrated in the suburbs, which accounted for 82% of the Grade A space transacted during the twelve month period. In terms of supply, the total quantity of available office accommodation edged up to 22,750 sq m at the end of March. This was as a direct result of a modest stock of second hand space released to the market during the three month period. A comparison with same period in 2014 reveals that supply has halved in the Galway office market. The rapid decline in supply has largely been underpinned by the strength of demand and a substantial slowdown in second hand space entering the market during the twelve month period. Table 2 Galway Office Net Availability by Grade A, Q A Stock No. of Offices Sum of Availability Sq M City Centre < 1,000 sq m > 1,000 5,000 sq m > 5,000 10,000 sq m % 2 4, Sub-total 3 5, Suburbs < 1,000 sq m 6 4, > 1,000 5,000 sq m > 5,000 10,000 sq m 1 1, Sub-total 7 6, Total 10 11, Irish Office Market Review - Q

16 Galway Office Market The vacancy rate in the Galway office market stood at 7.5% at the end of March The dearth of supply is more pronounced in the city centre where the vacancy rate, net of signed space, declined to 5.8% at the end of March, the lowest rate seen since the height of the market. An analysis of the profile of available space reveals that the suburbs account for the larger share of supply at 55%, however, this equates to just 12,600 sq m. Supply stayed constant in the city centre at 10,150 sq m in quarter one, equating to 45% of overall availability. Examining the profile of available stock reveals that two thirds of all space is Grade A stock, of which 59% is located in the city centre. Furthermore, the supply of Grade A continues to shrink rapidly. The opening quarter of 2015 saw the total quantity of available Grade A space, net of signed and reserved space, stand at 11,700 sq m, down from 32,500 sq m in quarter one of The proportion of Grade A supply in the city centre had declined rapidly, down 69% in twelve months. The acute shortage of supply in the city centre has resulted in many occupiers looking to the suburbs, in particular to satisfy larger requirements. The proportion of larger Grade A offices had declined more rapidly in the suburbs. Currently there is just one office >1,000 sq m in the suburbs compared with five offices twelve months previously. At present there are no available Grade A units greater than 5,000 sq m in either regions, in fact the largest available Grade A office in Galway measures just 2,500 sq m and is located at Dockgate in the city centre. Quarter one of 2015 saw one development commence construction during the three month period. The development is in Parkmore in the suburbs and will provide approximately 2,250 sq m of office accommodation. Prime headline rents in the Galway office market remained stable at 193 per sq m at the end of quarter one of Upward pressure on prime rents in the city centre is expected during the year, underpinned by the ongoing shortage of supply combined with improvements in occupier demand. Rents for prime suburban space remained stable at 129 per sq m at the end of March. A shortage of large Grade A floor plates is arguably masking the true value. Figure 13 Galway Office Market: Year-on-Year Take-Up (Sq M) & Vacancy Rate (%) 16 Irish Office Market Review - Q1 2015

17 Cork Office Market 2014 finished on a high note for the Cork office market, this followed a year which saw leasing activity build as the year progressed. This momentum continued into 2015 with a very robust level of transaction activity recorded during the three month period. The Cork market was the most active of the regional markets during the three month period in terms of the volume of individual deals transacted. The total volume of space transacted stood at 8,250 sq m across 17 deals during the opening quarter of 2015, broadly in line with the level of leasing activity recorded in the final quarter of Occupier demand during the three month period was also considerably higher than the long-run quarterly average level. The largest deal recorded during the quarter was the occupation by the Department of Social Protection Table 3 Galway Office Net Availability by Grade A, Q A Stock No. of Offices City Centre Sum of Availability Sq M < 1,000 sq m 38 11, > 1,000 5,000 sq m 5 8, > 5,000 10,000 sq m Sub-total 43 19, Suburbs < 1,000 sq m 48 17, > 1,000 5,000 sq m 15 28, > 5,000 10,000 sq m Sub-total 63 45, Total , % Figure 14 Cork Office Market: Year on Year Take-Up (Sq M) & Vacancy Rate (%) Irish Office Market Review - Q

18 Cork Office Market of approximately 2,950 sq m at Abbeycourt House on George s Quay in the city centre, a deal agreed in Other notable deals in the city centre include Brookfield Renewable Energy Partners occupation of approx. 1,100 sq m at City Quarter on Lapps Quay. Grade A space remains the most sought after In the suburbs, the largest occupation was by the energy company Centrica Plc at Cork Airport Business Park. The remainder of lettings during the quarter comprised smaller sized deals. The average size deal in quarter one stood at approximately 485 sq m, broadly in line with 2014 levels. Total take up in the year to quarter one of 2015 stood at 29,950 sq m, 26% higher than activity in the previous quarter. However, the rolling twelve month total is down on the comparable period in That said, while the overall volume of leasing activity is down, the number of individual deals increased appreciably in the same period. Tenant demand remains firmly focussed on Grade A accommodation, accounting for 77% of overall activity during the year to quarter one. However, occupier demand is being met by a shortage of suitable Grade A options, this is particularly the case in the city centre and for large floor plates. As a result, the suburbs continue to dominate lease activity, accounting for 86% of Grade A take up in the twelve month period. 18 Irish Office Market Review - Q1 2015

19 Cork Office Market In terms of overall leasing activity, the suburbs continue to dominate, accounting for 71% of take up in the twelve month period. The remaining space was occupied in the city centre. Supply continued to recede in the opening quarter Total supply in the Cork office market continued on a downward trajectory, declining by 4% in the opening quarter of the year to stand at 99,350 sq. Supply levels dipped below 100,000 sq m for the first time since early 2009 and are slowly edging downwards towards pre-downturn levels. The reduction in supply is underpinned by a combination of increased demand and a notable reduction in the volume of second hand space being released to the market. Furthermore, the corresponding vacancy rate for the Cork office market declined to 18.1% at the end of March, down marginally from 18.9% in the previous quarter. It is important to note that while the rate remains high by historical trends, it has fallen from a peak of 25.9% in late That said, the current rate is running considerably ahead of the equilibrium market rate of 7%. Additionally, there was a significant proportion of space reserved at quarter end, which if occupied will see the vacancy rate decline further in the coming quarters. The suburbs continue to account for the majority of available accommodation, 57%; that said, the vacancy rate in the suburbs is lower than in the city centre region which accounts for 43% of overall availability. Furthermore, approximately 78% of Grade A availability is concentrated in the suburbs; that said, the suburbs accounted for the largest share of Grade A take up in the twelve months to quarter one, thus eroding the stock of available Grade A space. The city centre continues to suffer from a shortage of Grade A space; an analysis of the profile of available Grade A space in the city centre reveals that a significant proportion of available Grade A space consists of smaller sized units less than 1,000 sq m. Currently there are no available Grade A floorplates measuring greater than 5,000 sq m in either the city centre or the suburbs to satisfy an occupier requirement. Construction activity was unchanged at the end of the opening quarter of Approximately 15,850 sq m remains under construction at No 1 Albert Quay in the city centre. This will go towards easing the shortage of good quality office space that exists in the city centre; however, 44% or 6,950 sq m is already pre-let to Tyco. PwC have also reserved approximately 1,400 sq m and there are other strong enquiries for the remaining space in the development. Following upward pressure on rents during the final quarter of 2014, prime headline rents remained stable at 240 per sq m during the opening quarter of the year, up from 215 per sq m during the corresponding period in Prime suburban accommodation stood at 140 per sq m at the end of March. Irish Office Market Review - Q

20 Limerick Office Market Following an exceptionally strong year of activity recorded in 2014, activity in the opening quarter of 2015 was somewhat sluggish in comparison. A solid volume of take up was recorded in the three month period, reaching approximately 4,000 sq m. That said, take up was boosted by one deal, the occupation by the US based global bank Northern Trust of approximately 3,300 sq m at City East Plaza on the Ballysimon road. The remainder of leasing activity comprised a small number of smaller sized deals. Leasing activity during the quarter exceed the long run quarterly average rate of take up which stood at 3,650 sq m at the end of March. However, despite the transaction activity in quarter one being driven by expansion-led occupations, the level of net take up, which measures the change in occupied space, remained Robust activity recorded in quarter one in negative territory, thus highlighting the somewhat fragile nature of the recovery and the ongoing movement within the market at present. The total volume of leasing activity in the twelve months to quarter one of 2015 stood at 12,500 sq m, down considerably when compared with the same period in That said, the analysis is skewed by a significantly large transaction which boosted activity in quarter one of The city centre region remains the most sought after location, accounting for almost two out of every three deals transacted over the past twelve months. However, an analysis of the profile of space reveals that all of the deals comprised of smaller office suites, averaging just 200 sq m. The shortage of larger floor plates in the city centre resulted in all of the deals greater than 500 sq m transacted during the twelve month period located in the suburbs. An analysis of the total volume of space transacted saw the suburbs account for 66% of accommodation. Activity in the Shannon Free Zone was subdued during the period. The flight to quality continues in the Limerick office market in Grade A space accounted for 71% of transacted space during the twelve month period. A further 21% comprises Grade B stock with the remaining 8% Shell and Core offices. As the stock of Grade A space, in particular, large Grade A floorplates, continues to recede, demand has increased for the existing stock of shell and core space. Much of this space comprises the overhang of space under construction at the height of the market that was not fitted out. There is approximately 15,750 sq m of shell and core space on the market, however, 40% of this is either signed or reserved. The supply conditions in the Limerick office market are contrary to that of a normal functioning market, whereby despite an improving occupier demand, supply levels rose during Table 4 Limerick Office Net Availability by Grade A, Q A Stock No. of Offices City Centre Sum of Availability < 1,000 sq m 36 11, > 1,000 5,000 sq m 1 1,300 4 > 5,000 10,000 sq m Sub-total 37 12, Suburbs < 1,000 sq m 28 6, > 1,000 5,000 sq m 1 1,300 4 > 5,000 10,000 sq m Sub-total 29 8, Shannon Free Zone < 1,000 sq m 2 1,150 4 > 1,000 5,000 sq m 5 7, > 5,000 10,000 sq m Sub-total 7 9, Total 73 30, % 20 Irish Office Market Review - Q1 2015

21 Limerick Office Market This trend continued into 2015, with supply levels trending upwards despite above average take up during the three month period. The quantity of available office space stood at 71,950 sq m at the end of March, representing an increase of 12% on the corresponding period in The increase in supply is stemming from the release of second hand space back to the market. The Ongoing fluctuations in supply levels past twelve months has seen the proportion of new lettings offset by new additions to the market, thus resulting in negative net take up. In line with a modest increase in supply levels in quarter one, the vacancy rate rose to 20.7% at the end of March, up from 18.4% in the previous year, thus highlighting the ongoing volatility in supply. The city centre accounts for the largest proportion of available space, 54%. The suburbs and the Shannon Free Zone then account for 24% and 22% respectively. An examination of the profile of available accommodation reveals that approximately 53% or 30,050 sq m of the net available stock is Grade A. However, of the Grade A new available space, 65% of the available units measure less than 1,000 sq m with an overall average of 295 sq m. Furthermore, there is currently no available office unit greater than 5,000 sq m in any of the regions, thus highlighting the lack of larger, good quality space available. There are only seven Grade A buildings greater than 1,000 sq m, five of which are located in the Shannon Free Zone and only one in the city centre. At the end of quarter one, there was approximately 25,350 sq m under construction in the market, 98% of which is located in the suburbs. However, 65% of this space is pre-let and does little to address the shortage of large Grade A floor plates, particularly in the city centre. Prime headline rents in the city centre remained stable during the opening quarter 2015 at 150 per sq m, 16% higher than the corresponding period in In the suburbs, prime rents remained stable at 129 per sq m at the end of March. Figure 15 Limerick Office Market: Annual Take Up (Sq M) & Vacancy Rate (%) Irish Office Market Review - Q

22 Market Definitions Take Up: Occupation of a building by a tenant. Reserved: Under active negotiation with single tenant. Pre-let: Contract is signed by tenant but premises are not yet occupied. Pre-sold: Contract is signed by tenant but premises are not yet occupied. Vacancy Rate: This is the ratio of availability to market stock. The vacancy rate for the Dublin office market is calculated excluding Georgian accommodation. The vacancy rate for the Limerick office market is calculated excluding Georgian accommodation. The vacancy rate for the Cork industrial market excludes the South East region and Ringaskiddy Office Market Definitions: 3rd Generation: Modern Buildings, post 1990, with raised access floors. 2nd Generation: Older Buildings, pre-1990, with floor trunking. Georgian: Approximately REGIONAL OFFICES Cork Categories: City Centre: Central Business District and adjoining areas. Suburban: Locations outside city boundaries such as Little Island, The Airport, and areas adjacent to the South Link Road system. Limerick Categories: City Centre: Central Business District and adjoining areas. Suburban: Locations outside city boundaries such as Raheen and the National Technological Park. Shannon Free Zone: Shannon Free Zone, Shannon, Co. Clare. Galway Categories: City Centre: Central Business District and adjoining areas. Suburban: Locations outside city boundaries such as Oranmore and Mervue. Dublin Office Market Definitions: Central Business District: This incorporates the prime area of the city and extends to the IFSC and North and South Docklands. Secondary: Locations adjacent to the prime region Suburban: Locations outside city boundaries such as Clonskeagh, Blackrock, Tallaght, Sandyford and the M50. Vacancy Rate: This is the ratio of availability to market stock. The vacancy rate for the Dublin office market is calculated excluding Georgian accommodation. 22 Irish Office Market Review - Q1 2015

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24 AUTHORS Marian Finnegan Chief Economist, Director Research +353 (0) marian.finnegan@dtz.ie Siobhán Corcoran Associate Director +353 (0) siobhan.corcoran@dtz.ie Ronan Corbett Director, Head of Business Space +353 (01) ronan.corbett@dtz.ie Sean Coyne Associate Director +353 (091) sean.coyne@dtz.ie Ciara McCarthy Associate Director +353 (061) ciara.mcarthy@dtz.ie Philip Horgan Surveyor +353 (021) philip.horgan@dtz.ie About DTZ Sherry FitzGerald DTZ Sherry FitzGerald is the sole Irish affiliate of DTZ, a global leader in property services. With Irish offices in Dublin, Cork, Galway, Limerick and an associated office in Belfast, we are the largest commercial property advisory network in Ireland and are part of Sherry FitzGerald Group, Ireland s largest real estate adviser. We provide occupiers and investors around the world with best-in-class, end-to-end property solutions comprised of leasing agency and brokerage, integrated property management, capital markets, investment, asset management and valuation CONFIDENTIALITY CLAUSE This information is to be regarded as confidential to the party to whom it is addressed and is intended for the use of that party only. Consequently and in accordance with current practice, no responsibility is accepted to any third party in respect of the whole or any part of its contents. Before any part of it is reproduced, or referred to, in any document, circular or statement, our written approval as to the form and context of such publication must be obtained.