Irish Office Market. Spring Review 2014

Transcription

1 Irish Office Market Spring Review 2014

2 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. The recovery in the office market continues to take place at different speeds across the regional centres, with Dublin leading the recovery The opening quarter of 2014 saw the Dublin, Galway and Limerick office markets witness strong performance and demand. Conversely, the Cork market experienced weaker demand in the three month period, following a drive in activity throughout 2013 Net take up levels for the twelve month period to March, which measure the change in occupied space, were positive for the Dublin, Cork and Limerick regions. Conversely, net occupation levels in the Galway region were in negative territory Availability levels remain high across the regional centres, in particular in the Cork and Limerick centres. However, these levels have reduced somewhat in the passing quarter. Vacancy levels in the Galway office market remain the lowest of all regions Rental inflation was evident in Dublin, however rents were stable across the other centres The shortage of good quality large office floorplates remains a feature of the overall office market. Notably, an occupier with a requirement for Grade A accommodation in the city centre is limited to just two buildings greater than 5,000 sq m in all regional centres 2013 witnessed speculative developments commence construction in the Galway and Dublin office markets, with the opening quarter of 2014 bringing more development activity. A further 13,350 sq m has commenced in the Limerick office market, while projects such as the Albert Quay development are in the pipeline for the Cork market in 2014 Figure 1 Irish office market, quarterly take up (sq m) Table 1 Irish Office Markets - Key figures Q Office Market Dublin Galway Cork Limerick Market Stock 3,350,130 Sq M 297,450 Sq M 549,000 Sq M 305,300 Sq M Take Up 43,200 Sq M 3,550 Sq M 1,550 Sq M 14,300 Sq M Availability 629,500 Sq M 46,300 Sq M 122,000 Sq M 64,100 Sq M Vacancy Rate 18.8% 15.6% 21.8% 17.4% Under Construction 22,500 Sq M 8,350 Sq M 0 Sq M 13,350 Sq M 2 Irish Office Market - Spring Review 2014

3 Dublin Office Market Take Up 2013 saw the recovery in the Dublin office market become firmly entrenched. Following a stellar finish to 2013, the opening quarter of 2014 saw momentum continue with a very robust level of activity recorded in the three month period. A key dynamic of the recovery evident during 2013 was an emergence of expansion-led requirements, resulting in a narrowing in the gap between take up and net take up. The Dublin occupier market is expected to strengthen in 2014, as space requirements increase in line with improvements in the wider economy and labour market. However, ongoing erosion of Grade A supply could potentially hamper transaction levels this year. The opening quarter of 2014 has seen gradual improvements in business confidence, this in turn has begun to feed through into demand for office space and, in particular, larger floor plates. A lack of Grade A space and strengthening demand are driving rental growth expectations across the Central Business District (CBD). This has resulted in a change in occupier s mind-set whereby occupiers are seeking Occupiers factoring in future expansion in current take up space now to accommodate potential future expansion, as opposed to growing into space in line with incremental expansions. However, this demand is being met by limited supply of existing Grade A space, particularly larger floor plates, with just one unit greater than 5,000 sq m in size of the net stock of available Grade A space in the CBD. Thus there are prospects for further speculative development and refurbishment of Grade B space. The opening quarter of 2014 witnessed a robust volume of transactions. The level of take up or occupied space in the Dublin office market stood at 43,200 sq m at the end of March, double the level of activity recorded during the corresponding quarter in Furthermore, the level of space signed and awaiting occupation rose to approximately 82,100 sq m, up 74% on quarter one of 2013, thus demonstrating a higher level of commitment by occupiers. A further 45,100 sq m was under offer at quarter end and the volume of enquiries were notably stronger during the three month period. Accordingly, the strength in the level of underlying demand supports a strengthening of take up during the year. The level of net take up, which measures the change in occupied space, increased notably during the past twelve months. While 43,200 sq m was occupied during quarter one, a significant proportion of this involved movement within the market resulting in a net increase in occupation of 25,100 sq m. That said, the level of net take up is strong when compared to the 10 year average. The recovery in the Dublin office market is taking place at different speeds across the county saw a two-tiered recovery at play, with increased activity and rental inflation largely focussed in the CBD. In contrast, activity in suburban locations remained somewhat sluggish. However, the opening quarter of 2014 saw activity in the suburbs outperform that of the CBD, however this is largely due to a small number of larger sized deals occupied in the suburbs during the three month period, this trend may develop given the shortage of larger sized offices in the CBD at present. 3 Irish Office Market - Spring Review 2014

4 Dublin Office Market Take Up An analysis of the profile of space occupied during the quarter reveals a robust level of demand for space greater than 1,000 sq m. The average sized deal during quarter one of 2014 was 1,150 sq m; this compares with 655 sq m during the corresponding period in Furthermore, there was a 19% increase in the volume of deals transacted compared with quarter one In relation to the space occupied, the largest deal during the quarter measured approximately 5,000 sq m. This was the occupation by Salesforce.com at No.1 Central Park, Leopardstown, Co Increased levels of confidence evident in the market Dublin, a deal signed in Central Park is home to global occupiers including Vodafone, Tullow Oil, Bank of America Merrill Lynch to name a few. Other notable deals include Glanbia s occupation of approximately 2,500 sq m at Waterside, Citywest, Dublin 24. At the end of quarter one there was approximately 82,100 sq m signed and awaiting occupation in 2014, this compares to 47,000 sq m in 2013, thus highlighting the increased confidence in the market at present. There were a number of significant deals signed during the first quarter. The largest deal signed during the three month period measured approximately 6,500 sq m. This was the letting of three floors to Amazon at Burlington Plaza, Burlington Road, Dublin 4. Amazon are expected to occupy later in the year and the offices will provide capacity for future growth. Furthermore, the US cloud storage company Dropbox have signed approximately 5,100 sq m at Park Place on Hatch Street, Dublin 2 as their base for its international operations. Other significant transactions include approximately 4,350 sq m signed to UPS at 3040 Citywest, Dublin 24 and Oracle have signed approximately 3,000 sq m at Block B2 East Point, Dublin 3. The level of enquiries also strengthened during the opening quarter of the year. At the end of March, the market saw an encouraging amount of space under offer, including approximately 4,000 sq m at The Brunel Building, Heuston South Quarter, Dublin 8. Furthermore, Riot Games have reserved approximately 3,500 sq m at The Observatory, Sir John Rogerson s Quay in the south Dublin docklands. With regard to future demand, there are a number of high profile companies with requirements for space, including LinkedIn, Twitter, Citibank, Groupon and Brown Brothers Harriman. 4 Irish Office Market - Spring Review 2014

5 Dublin Office Market The Central Business District The changing pattern of demand in the Dublin office market over the past number of years has seen demand for office space largely concentrated in the Central Business District (CBD). Since 2007, the share of offices occupied in the CBD has increased progressively year on year, as occupier demand continued to focus on prime office buildings that offer modern space and infrastructure. In 2012, almost two out of every three offices occupied were located in the CBD. Modern accommodation, in particular Grade A accommodation, continues to account for the greatest share of take up. However, 2013 saw the proportion of Ongoing erosion of Grade A accommodation in CBD space taken up in the CBD fall to 41%; this is largely as a result of a shortage of modern Grade A accommodation in the CBD has seen this trend continue, CBD take up fell to 25% in quarter one, its lowest level since The last six months has seen demand for suburban offices outstrip that of the CBD. The biggest issue facing the CBD in 2014 is the lack of Grade A stock that is currently available which is driving rental growth and could potentially hold back transaction levels in the CBD this year. Transaction activity in the CBD fell to just 10,600 sq m in the opening quarter of 2014, of which 75% comprised Grade A space. It has been well documented that Dublin s stock of Grade A office space is shrinking rapidly in the CBD. Of the net stock of available Grade A space, there is only one unit greater than 5,000 sq m in size, highlighting the need for either refurbishment or further speculative development to come on-stream for large floor plates in the CBD. The dwindling supply of Grade A office space in the CBD could potentially compromise Dublin s attractiveness to corporate occupiers, both domestic and overseas. Moreover, Grade A1 remains the occupational preference. As a result, the best space in the best buildings continues to diminish. There is approximately 107,700 sq m of A1 space unoccupied in the CBD, however, 56% of this space is either signed or reserved. As such, the net available Grade A1 space falls to just 47,000 sq m in the CBD. This highlights the impending shortage of top Grade A1 accommodation in the city. At the end of quarter one, the quantity of space signed and awaiting occupation stood at 53,700 sq m, 94% of which consisted of Grade A1 accommodation. Furthermore, there was 20,100 sq m under offer in the CBD at the end of March, approximately 45% of the total space reserved in the Dublin office market. Moreover, 83% of the space reserved in the CBD was Grade A space, with half of the space Grade A1. Within the CBD boundaries, the South Docks area was the most sought after location; accounting for 46% of the CBD space occupied in the opening quarter. This was followed by the Traditional Core area accounting for 38%. The Ballsbridge and IFSC North Docks areas absorbed 12 and 4% respectively. Simultaneously, the supply of modern offices and in particular larger office suites within the CBD boundaries are diminishing at a fast pace. In particular, supply levels in the Docklands continue to recede. The quantity of available space in the South Docks stands at just 56,000 sq m, of which almost 28,800 or 51% is either signed or reserved. Once this space is occupied, the vacancy rate in the South Docks could potentially fall to single digit figures. A similar scenario exists in the North Docks with 46% of the available space either signed or under offer. Once this space is occupied, the vacancy rate in these areas will fall to sub 10%. The beginning of 2014 saw a new trend in occupier behaviour; particularly by US tech companies, taking more space than they initially needed. These tenants, who previously benefitted from benign conditions for occupiers in a tenantfriendly market, are now concerned that their growth will be curtailed by not being able to acquire the space they need. This is a new dynamic which will particularly impact on take up for the rest of 2014 and into Ronan Corbett Director, Head of Business Space DTZ Sherry FitzGerald 5 Irish Office Market - Spring Review 2014

6 Dublin Office Market The Central Business District A review of overall activity levels in the Dublin office market reveals the ongoing dominance of the IT/ Telecommunications sector, accounting for 41% of overall take up during quarter one. Active occupiers during the quarter included Salesforce.com, Dropbox, Oracle, Amazon, Yahoo, Twitter, Hibernia Evros and LinkedIn. Such high profile occupancies further consolidated Dublin s status as an established European hub for technology and social media companies. While the IT/Telecommunications sector continues to dominate market activity, the financial sector is Finance sector growth in the CBD gradually regaining lost ground following a prolonged period of decline. The finance sector s share of the market stood at 11% of total take up in quarter one. This is expected to increase as 2014 unfolds with a number of significant deals in the pipeline. Both the professional sector and the Pharmaceutical/Health sectors were quiet during the opening quarter of Figure 2 Dublin take up by tenant type, Q Within the CBD specifically, the finance sector outperformed the IT/Telecommunications sector, absorbing 35% of activity during the three month period, while the IT/Telecommunications sector accounted for 24% of all transactions during the quarter. Figure 3 Dublin office market: take up (sq m) & vacancy rate (%), Q Irish Office Market - Spring Review 2014

7 Dublin Office Market Availability Supply levels in the Dublin office market remain high and very much dominated by second hand space, however, 2013 saw an erosion in the rate of decline. This trend has continued into The overall quantity of available office space declined by 4% during the three month period to stand at 629,500 sq m at the end of March. The reduction in supply stems from improving market conditions and a stabilisation in the rate of second hand space entering the market. A comparison with the same period in 2013 reveals a 15% reduction in supply levels. Within the CBD, 2013 saw the rate of decline in supply plateauing as evidenced by a 3% annual reduction in supply levels. The opening quarter witnessed a modest increase in the quantity of available space during the three month period. However, it is important to note that the quarterly increase was driven exclusively by the release of Grade B second hand stock. The CBD market continues to witness increased polarisation between the supply of Grade A stock and Grade B levels. The quantity of Grade A space diminished during quarter one in line with the strength in demand for Grade A space. On the other hand, the quantity of Grade B stock increased by 12% during the quarter with older Grade B2 stock driving the increase. Total availability in the CBD stood at approximately 246,300 sq m at the end of March, equating to 39% of the total available office space in the capital. Net availability in the CBD fell to just over 192,550 sq m with a further 20,100 sq m of office space reserved at the end of quarter one. Grade A space remains the most sought after in the CBD and continues to dominate take up in this region. Approximately three quarters of the space transacted in the CBD in quarter Figure 4 one of 2014 comprised Grade A space. As a result, the supply of Grade A space continues to fall at a faster rate. At the end of quarter one, there was 150,600 sq m of available Grade A space in the CBD, down almost 10% on the level recorded twelve months previously. At present, the Grade A vacancy rate stands at 14.7%. However, with approximately 67,400 sq m of Grade A space either signed or reserved at the end of March, the Grade A vacancy rate could potentially fall to single digit levels in the near future. There is approximately 107,700 sq m of A1 space available in the CBD. However, 56% of this space is either signed or reserved. Furthermore, the proportion of larger office floor plates has diminished significantly. The largest offering of space can be found at Block 5, Grand Canal Square, Sir John Rogerson s Quay measuring approximately 11,600 sq m. This is the only building available that can satisfy a 5,000+ sq m requirement of Grade A space in the CBD. Demand is strongest for Grade A floorplates measuring 1,000-1,500 sq m, resulting in a sharp fall in the quantum of available offices to satisfy this demand. Dublin office market: availability (sq m) & vacancy rate (%), Q Irish Office Market - Spring Review 2014

8 Dublin Office Market Availability As the quantity of Grade A stock continues to diminish, many occupiers are looking to Grade B space to fulfil requirements. At the end of March, the quantity of Grade B properties in the CBD stood at approximately 95,650 sq m. However, there are no B1 floorplates greater than 5,000 sq m and just a few remaining options for tenants looking for good quality large floorplates greater than 1,000 sq m. While the shortage of space in the CBD is a concern, supply levels in the overall Dublin office market remain stubbornly high by historical standards. This is further highlighted by an analysis of the vacancy rate. The vacancy rate declined to 18.8%, Grade A stock continues to diminish in the CBD down from 22.1% recorded twelve months previously. The vacancy rate peaked at 24.2% in mid A significant proportion of the vacant space is older stock which could be deemed effectively obsolete. This stock has been on the market for a considerable number of years and therefore arguably masks the true vacancy rate in the market. An analysis of the spread of overall available space in the office market at the end of quarter one 2014, reveals that the suburbs continue to account for the majority of accommodation, 37%. This would suggest that the vacancy rate in this region is significantly greater than the overall market rate of 18.8%. A further 24% of accommodation is located in the secondary region. Within the CBD, the Traditional Core area accounts for the largest proportion of available space, 42%, with the profile of space heavily weighted towards Grade B stock. The South Docks and IFSC North Docks account for 23% and 19% respectively, with the available space almost exclusively Grade A. While the Fringe and Ballsbridge areas of the CBD account for a small proportion, they are broadly mixed in terms of grade profile. Figure 5 Dublin CBD availability by area, Q The corresponding vacancy rate in the CBD rose to 14.4%, reflecting the modest increase in supply witnessed during the three month period. However, given the strength of activity in the pipeline, the vacancy rate could potentially drop to 10.1% following the absorption of the space that is signed and reserved at present. It is important to note that approximately 51% of the total office stock in the capital is located in the CBD. 8 Irish Office Market - Spring Review 2014

9 Dublin Office Market Under Construction Rental Levels The final quarter of 2013 saw cranes re-emerge on the Dublin skyline as the first works on speculative office developments commenced in a number of years. The most significant of these was the breaking of ground at the former Vet College site in Ballsbridge, Dublin 4. While the original planning permission allows for an office element measuring 15,600 sq m, it is unclear what the outcome will be. Work on the redevelopment of the former Canada House office is well underway at the corner site at St. Stephen s Green, Dublin 2, comprising approximately 6,900 sq m. Given that this development is speculative, it will prove a good test for the market. Development activity is expected to be further enhanced with a number of projects in the pipeline to commence construction during In the interim, the market will continue to steadily absorb the excess space available in the market at present. The total space under construction at the end of March stood at approximately 22,500 sq m, all of which is speculative and located in the CBD area of the city. The total stock of office accommodation remained unchanged at approximately 3,350,100 sq m at the end of quarter one saw a realisation amongst occupiers of the restricted level of supply of Grade A buildings in the CBD and that they could no longer wait around for the right space to become available. This trend has continued into 2014 with increased levels of activity and higher headline rents during the opening quarter. As the supply of Grade A space in the CBD continues to recede, prime rents are beginning to come under pressure as occupiers realise that the market is becoming more supply-constrained. In the CBD, headline rents for third generation prime accommodation stood at approximately 376 per sq m at the end of March. Prime headline rents are expected to see further rental inflation in the coming quarters with headline rents between 400 and 484 per sq m achievable by year end. Deals at the latter rent levels will be niche transactions and not an indicator of a wider trend in the market. Rapidly increasing rents in the CBD coupled with restricted supply levels could see demand for suburban offices increase further saw the level of incentives available on existing new Grade A space continue to tighten and lease flexibility diminish has seen a continuation of this trend. In the suburbs, while demand increased during the quarter, rents have broadly remained stable and 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 161 and 194 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 150 per sq m per annum. 9 Irish Office Market - Spring Review 2014

10 Galway Office Market With the opening quarter of 2014, came a revival of activity in the Galway office market. Transaction activity levels improved when compared with the previous quarter and the comparable period in Having said that, one large deal has the potential to change the entire landscape of the market, the volume of individual deals transacting remains subdued. Take up levels of 3,550 sq m were recorded in the three months to March, with activity largely boosted by one deal accounting for 57% of take up. A unit in Sandyfort Business Park, measuring 2,000 sq m at 54 per sq m, has been taken up by The Learning Institute; a re-brand of the online and class-room based education providers HiTec. This is one of the largest deals seen in the office market in recent months and Revival of activity in the Galway office market in quarter one provides a boost for overall sentiment in the market. Other notable deals include the occupation of Hanley House in the Crescent, measuring 550 sq m, by a medical practice. In addition IrishApps, a mobile app development company, have taken up approximately 500 sq m in the Ballybrit Business Park. This is reportedly on a short term lease. Table 2 Galway office availability by Grade A, Q A Stock Figure 6 No. of Offices City Centre Sum of Availability Sq M < 1,000 sq m 2 1,200 4 > 1,000 5,000 sq m 4 10, > 5,000 10,000 sq m 1 5, Sub-total 7 17, Suburbs < 1,000 sq m 8 4, > 1,000 5,000 sq m 5 9, > 5,000 10,000 sq m Sub-total 13 14, Total 20 32, Galway office market: take up (sq m) & vacancy rate (%), Q % Transaction levels in the twelve month period to March stood at 5,100 sq m. This is significantly lower than the comparable figure a year previous and is due to particularly weak demand experienced in Furthermore, net take up for the same period, which measures the change in occupied space, was negative standing at -3,300 sq m. The suburbs remain the most attractive location for occupiers, accounting for 89% of take up, while the city centre absorbed the remaining 11%. Grade A stock accounted for 58% of space occupied in the period also. 10 Irish Office Market - Spring Review 2014

11 Galway Office Market The total quantity of available space in the Galway office market decreased by 7% in the three month period to stand at 46,300 sq m. The shift in direction is largely due to a substantial decrease in the quantity of second hand space released to the market during the quarter, coupled with increased activity. That said, year-on-year results show a significant increase of 19% of available stock. The suburbs account for the majority of accommodation, 58%, while the remaining 42% is located in the city centre. Examining the profile of available stock reveals that 70% of all space is grade A stock. Conversely, there is just one unit of Grade A stock which measures over 5,000 sq m, which is the Webworks building, Fairgreen, Foster Street, in the city centre. It is worth noting, there has been an increased amount of interest in this building of late. The vacancy rate in the Galway office market remains the lowest office vacancy rate in all regional centres. In the three month period, the vacancy rate decreased by over 100 basis points to stand at 15.6%. Rental levels for prime office space remain unchanged from quarter four of 2013, standing at 151 per sq m. Rents are now 57% lower than peak levels. Rents for prime suburban space stands at 129 per sq m. Due to the limited supply of large floor-plates in the market, in the closing months of 2013, construction commenced on Hewlett Packard s new facility, measuring approximately 8,260 sq m. Rents are believed to be in the region of 188 per sq m. Enquiries for good quality office accommodation have improved. Notably, a number of office buildings in the city centre are currently under negotiations which should lead to increased take up levels in the coming months. Sean Coyne, Associate Director DTZ Sherry FitzGerald 11 Irish Office Market - Spring Review 2014

12 Cork Office Market Following robust levels of transaction activity in the Cork office market throughout 2013, a weaker opening quarter to 2014 was witnessed. In spite of lower activity levels, demand remains strong with pressure on supply levels for the best available space becoming evident. Take up levels for the first quarter of 2014 measured approximately 1,550 sq m. Smaller sized deals dominated activity in the period. The largest occupation in the three month period occurred in the River House, Blackpool, measuring approximately 550 sq m, taken up by software development company, Xanadu Consultancy. The suburbs continue to dominate take up Occupation levels in the twelve month period to March stood at 38,500 sq m; 43% higher than the comparable twelve month period. Net take up, which measures the change in occupied space, of approximately 14,850 sq m was recorded for the same period. The suburbs led occupation preference in the period, with 90% of transactions occurring in the region. That said the dominance of the suburbs also reflects the limited amount of quality stock available in the city centre. Furthermore, 92% of the occupied stock was Grade A space. Table 3 Cork office availability by Grade A, Q A Stock Figure 7 No. of Offices City Centre Sum of Availability Sq M < 1,000 sq m 42 11, > 1,000 5,000 sq m 10 19, > 5,000 10,000 sq m Sub-total 52 30, Suburbs < 1,000 sq m 61 20, > 1,000 5,000 sq m 19 31, > 5,000 10,000 sq m 2 12, Sub-total 82 65, Total , Cork office market: take up (sq m) & vacancy rate (%), Q % Strong demand continues for well located, high quality large floor-plates in both the city centre and suburbs. That said, a limited supply of good quality accommodation, particularly in the city centre, continues to be a feature of the market. Philip Horgan, Surveyor DTZ Sherry FitzGerald 12 Irish Office Market - Spring Review 2014

13 Cork Office Market While the suburbs has dominated take up levels in recent years, demand for city centre space is experiencing a revival. Planning has been granted and the appeal lodged for the nine-storey Albert Quay development in the city centre; total space to measure approximately 18,600 sq m. The development will consist of Grade A, large floor-plate office space and has an expected completion date in It is understood that fire protection and security systems giant, Tyco, plan to move to the new office block on completion. They have currently signed approximately 2,300 sq m of first floor space in City Gate in the interim on a short term lease. Bord Gais are reportedly set to occupy the Webworks building, next to City Hall in Cork City. The lease on their existing office in Lapps Quay is due to end this year. They are expected to occupy approximately 3,700 sq m in the building over a phased period. Furthermore, Cork City Council has announced plans to demolish unused remains at Odlums mill at Kennedy Quay. An Bord Pleanala have approved this, having previously rejected a commercial development application, however the clearance of the site could point towards its redevelopment. Supply levels returned to the downward trajectory witnessed for the most part of 2013, to stand at 122,000 sq m. This marks a 3% reduction on quarterly levels and an 11% drop on annual levels. The reduction in supply levels was driven by a reduction on the release of second hand space to the market. Additionally, approximately 11% of this is currently reserved which bodes well for future transaction activity. Notably, Island House - Island Plaza, in Eastgate Business Park has been sold to Eli Lilly for a reported 10 million but they have not yet occupied. The unit measures approximately 6,000 sq m. Furthermore, the vacancy rate for the Cork office market stood at 21.8% at the end of March, reducing from 25.4% in the comparable period last year. The vacancy rate has continued to decrease steadily since Q In the suburbs, 62% of stock is available, 28% in the city centre; highlighting the lack of available space in the city centre s prime location. Of the stock that is available in the overall Cork market, Grade A space accounts for 78%. Having said that, most of this space consists of smaller units. An occupier with a requirement for a floor-plate measuring greater than 5,000 sq m is limited to just two units, located in City Gate Park. However, Eli Lilly are reportedly set to occupy one of the remaining units greater than 5,000 sq m; thus leaving one unit which is completely available. Regarding older Grade B stock, the phasing out of the R22 air conditioning systems, as per EU regulations, may have an impact on demand for older stock throughout the coming year; thus increasing demand for Grade A stock. Rental levels for prime city centre space in Cork were stable at 215 per sq m at the end of March. This follows an increase of 2% over the course of Moreover, rental inflation is expected over Irish Office Market - Spring Review 2014

14 Limerick Office Market 2014 commenced with robust activity levels in the Limerick office market. The opening quarter of the year saw a noteworthy increase in take up, with stronger demand evident in the market. Furthermore, there was a significant increase in the volume of deals done in the period. Notably, there are strong signs of expansion for the year ahead, with a sizeable amount of space signed or reserved. The total quantum of take up recorded in the three months to March was 14,300 sq m. This is the largest quantum of take up recorded since Q Take up in the quarter was largely boosted by the occupation of Building 7000, Westpark Business Campus, Shannon which was purchased by Genworth Financial Inc, a financial security company. The occupation of approximately Renewed interest in shell & core accommodation 10,700 sq m comprised shell and core space, which is currently experiencing renewed interest in the market due to larger requirements. The remainder was acquired in smaller sized deals such as the acquisition of 800 sq m in Dromore House, Shannon. Maguire Caulfield Browne accountants have occupied the former IBRC offices which covers the ground floor on 98 Henry Street, in the city centre, 500 sq m. Table 4 Limerick office availability by Grade A, Q A Stock No. of Offices City Centre Sum of Availability < 1,000 sq m 36 8, > 1,000 5,000 sq m 2 2,300 8 > 5,000 10,000 sq m Sub-total 38 10, Suburbs < 1,000 sq m 26 6, > 1,000 5,000 sq m 2 3, > 5,000 10,000 sq m Sub-total 28 9, Shannon Free Zone < 1,000 sq m 2 1,150 4 > 1,000 5,000 sq m 4 6, > 5,000 10,000 sq m Sub-total 6 7, Total 72 28, % Take up levels of 20,900 sq m were recorded in the twelve months to March, driven largely by the strength of activity in quarter one. The comparable figure the year previous was just 10,050 sq m. Furthermore the level of net take up, which measures the change in occupied space, stood at 9,700 sq m in the twelve month period to March. This compares to negative net take up levels in the year previous. 14 Irish Office Market - Spring Review 2014

15 Limerick Office Market The Shannon Free Zone was the location preference for occupiers in the period accounting for 55%, the city centre 33%, while the suburbs accounted for 12% of overall transactions. Furthermore, Shell & core stock dominated take up accounting for 63% of activity, while Grade A stock accounted for 29% and Grade B stock 8%. The overall volume of available space in the Limerick office market decreased significantly to 64,100 sq m during the first quarter of 2014, representing a 13% reduction Notable decrease in supply levels in the quarter on the previous quarter. The decrease in availability over the three month period stemmed from an increase in activity. That said, the rate of release of second hand space to the market picked up pace during the quarter. On a positive note, 20% of available stock is reserved which bodes well for the coming quarters. An analysis of the vacancy rate reveals that the vacancy rate has reduced from 18.0% to stand at 17.4% over the twelve month period. This vacancy rate is one of the lowest of the regional centres. There has been no office accommodation under construction since 2008, thus interestingly, approximately 13,350 sq m is currently under construction in the Limerick office market; all of which is in the suburbs. Analog are building offices as part of an extension to their original building in Raheen. In addition to this, approximately 300 sq m of space is currently undergoing a change of use to office space on the first floor of the QuadTech in the National Technology Park. A breakdown of the profile of available accommodation reveals that approximately 44% of available stock is grade A stock, while just 12% of available stock is of the highest quality Grade A1. Furthermore, 30% of available accommodation comprises shell and core space. There is currently no available office unit measuring more than 5,000 sq m; highlighting the lack of larger, good quality space available. This will impact demand for shell & core space in the coming year; particularly in the suburbs. Furthermore, notably, due to the limited availability of larger floor plates, a number of landlords are believed to be currently reviewing existing industrial space for possible office accommodation. The city centre accounts for the largest proportion of available space, 50%. The suburbs and the Shannon Free Zone then account for 32% and 18% respectively. The city centre is expected to see an increase in shortterm lets until larger stock becomes available in the suburbs. Rental levels for prime city centre space in Limerick remains stable at 118 per sq m at the end of March, following an increase of 10% over The rise in rents was due to an increase in requirements and a reduction in fitted stock in the market. Further rental inflation is expected over the year. Figure 8 Limerick office market: total take up (sq m) & vacancy rate (%), Q Take up levels bode well for 2014, with a significant proportion of space reserved and signs for expansion becoming evident. Ciara McCarthy, Associate Director DTZ Sherry FitzGerald 15 Irish Office Market - Spring Review 2014

16 Outlook The strengthening of demand that was witnessed in 2013 translated into the Dublin, Galway and Limerick markets in the opening three months of 2014, with stronger volumes of transaction activity experienced. Conversely, the Cork market witnessed subdued activity in the three month period. A shortage of larger floor plates, in particular Grade A larger floor plates, became increasingly evident in This fuelled rental growth in some of the centres, specifically the Dublin and Limerick markets, which saw rental growth of 12% and 10% respectively. Furthermore, there are currently no office units of Grade A stock measuring over 5,000 sq m available in the Limerick market and just one in the Dublin market. Further rental inflation was evident in the Dublin centre, while rents were stable across all regional centres in the opening three months. Availability levels in all centres witnessed reductions in the first quarter, however, remain high by historical standards. Following the re-emergence of construction activity in the latter part of 2013, the opening three month period witnessed further development activity. Approximately 13,350 sq m has commenced construction in the Limerick office market, while projects such as the Albert Quay development are in the pipeline for the Cork market in Irish Office Market - Spring Review 2014

17 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. 17 Irish Office Market - Spring Review 2014

18 Appendix Table 5 Indicative Regional Office Rents Q Location Third Generation City Centre Third Generation Suburban per Sq M per Sq M Dublin Cork Galway Limerick Irish Office Market - Spring Review 2014

19 AUTHORS Marian Finnegan Chief Economist, Director Research +353 (0) marian.finnegan@dtz.ie Siobhán Corcoran Associate Director +353 (0) siobhan.moloney@dtz.ie Tanya Duffy Research Assistant +353 (0) tanya.duffy@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.