CBRE Dublin Office www.cbre.ie Overall Commentary Quick Stats Q1 Availability Take-Up Investment Prime Rents Yields Demand Hot Topics Change from previous quarter Office take-up in Dublin in the first quarter of 212 reached 24,97m 2, representing a decline of 51% compared to the same quarter last year There were 32 individual lettings signed in the quarter with most comprising relatively small transactions The vacancy rate in the capital stands at 22.9% at the end of Q1 having fallen slightly in the first three months of 212 Prime headline quoting rents in Dublin city centre are now approximately 296 per m 2 and are expected to stabilise at this level More than 75% of lettings signed in Dublin in were in the city centre There was a notable 71% increase in demand for new office premises in the capital quarter-on-quarter as a result of a number of new requirements being enacted In total, 24,97m 2 of office lettings were signed in Dublin in the first three months of 212. This represents a 51% decrease in letting activity in the capital compared to the same quarter last year and a decline of some 32% compared to the most recent quarter, Q4 211. Total take-up of only 5,99m 2 was signed in the suburbs in, which represents a decline of more than 5% on both an annual and quarterly measure. The deterioration in the volume of lettings signed in Dublin in the first quarter of the year is not surprising considering the length of time it is taking to conclude negotiations at present and the fact that many corporate occupiers are curtailing their expansion and relocation requirements until such time as the economic climate is more certain. Nevertheless, several office lettings are in negotiations at present and there are a number of outstanding requirements for office accommodation in the capital which is likely to boost take-up in subsequent quarters. Indeed, overall demand for office accommodation in the capital was up 71% quarter-on-quarter as a result of some large requirements that emerged during. Our research indicates that the quantum of office letting activity in the first three months of the year typically accounts for approximately 2% of annual take-up in the market, which suggests that our forecast of 13,m 2 of letting activity being achieved in Dublin in 212 is realistic. More than 75% of the office lettings signed in Dublin during were located in the city centre, with the Dublin 2/4 district accounting for more than half of the city centre letting activity. Large lettings in the Eastpoint development in Dublin 1 to Arvata and Google boosted the dominance of the Dublin 1/3/7 office district in terms of take-up in the first three months of 212. These two lettings between them accounted for just less than 3% of total letting activity in Dublin in the three month period. The vacancy rate fell slightly in to 22.9% with approximately 828,m 2 of office accommodation being officially marketed to let in the Dublin market at the end of the first quarter of this year. An analysis of the Top 1 largest letting transactions in the quarter reveals net absorption of almost 7%. Four of the ten largest lettings in Q1 comprised companies expanding to larger premises; one was a brand new requirement while the remainder were companies relocating to larger premises. There were 3 office investments sold in the capital during Q1, bringing the total investment spend on offices in Dublin during the quarter to 18.5 million, equating to 92% of the total investment spend in the city in the period. Prime rents in the Dublin office market at the end of were 296 per square metre and are now expected to stabilise at this level although there is expected to be further downward pressure on rents for nonprime buildings over the course of the year. Meanwhile, prime office yields in Dublin are now approximately 7.25%. Dublin Gross Office Take-Up Q1 21 Sq.M. 6, City Centre Suburbs 5, 4, 3, 2, 1, Source: CBRE Q1 21 Q2 21 Q3 21 Q4 21 Q1 211 Q2 211 Q3 211 Q4 211 212, CBRE
MarketView Dublin Office There were 32 office lettings, extending to 24,97m 2 signed in the Dublin office market during. 18,188m 2 or 75.5% of overall office take-up in Q1 occurred in the city centre while the suburbs accounted for the remaining 24.5% or 5,99m 2 of lettings signed in Dublin in the period. 14 of the 32 lettings signed in Dublin in the first three months of 212 were to Irish companies accounting for 9,96m 2 or 38% of letting activity between them; 11 lettings totalling 9,668m 2 were to US companies which accounted for 4% of office take-up in Dublin during Q1 while there were 6 lettings totalling 5,148m 2 equating to 21% of Q1 take-up to companies from other jurisdictions. There was only one letting signed in the city to a UK company accounting for 185m 2 or 1.% of take-up in the quarter. Our research indicates that 32% of the office take-up in Q1 comprised lettings of smaller than 929m 2 in size. 12% of the quantum of accommodation let in the period comprised lettings extending to between 929m 2 and 1,858m 2 in size while 57% of the quantum of office accommodation let occurred in lettings of between 1,858m 2 and 4,645m 2 in size. There were no lettings of more than 4,645m 2 (5, sq ft) signed in Dublin in the first quarter of the year. Some of the more significant office lettings signed in Dublin during the period include the letting of 4,88m 2 to Arvato at Blocks J and K at Eastpoint Business Park in Dublin 1; the letting of 2,959m 2 to Google at Block P at Eastpoint and the letting of 2,539m 2 to AIB at Hume House in Dublin 4. The overall vacancy rate in the capital fell slightly to 22.9% in Q1. Although there is a complete lack of new office development in Dublin, older office buildings which are being vacated in favour of newer alternatives continue to be added back into the vacant stock. In addition, many companies are attempting to sublet or assign excess accommodation at present and this is maintaining the overall level of availability at relatively high levels despite the underlying level of letting activity. According to our research, there was approximately 828,m 2 of office accommodation being marketed to let in the capital at the end of the first quarter of 212. Demand for office space in Dublin rose significantly in Q1 compared to the previous quarter as a result of some new requirements emerging. There was approximately 181,m 2 of outstanding requirements for office accommodation in Dublin at then end of the quarter, with almost 54% expressing a preference to locate in Dublin city centre. Tenants in the business services sector accounted for the greatest proportion of office lettings signed in Dublin during, accounting for 37% of lettings in the capital in the period. The computers and high tech sector accounted for 28% of letting activity in the period. Tenants in the financial services sector accounted for 17% of lettings signed in Dublin during Q1 while manufacturing, industry and energy tenants accounted for a further 14% of letting activity in Dublin in the period. Interestingly, the public sector and professional companies signed no office lettings in Dublin in the first three months of 212. 28% Dublin Q1 Office Take-Up 27-212 3, 25, 2, 15, 1, 5, 6, 5, 4, 3, 2, 1, - Q1 27 Q1 28 Q1 29 Q1 21 Q1 211 Dublin Office Availability 14% Grade A Secondary In Need of Significant Refurbishment Georgian Dublin 2/4 Dublin 1/3/7 West Suburbs 4% 17% South Suburbs 37% North Suburbs Dublin 6/8 Dublin Gross Office Take-up by Occupier Type Q1 212 Business Services Financial Services Computers/Hi-Tech IFS Manufacturing, Industrial & Energy Consumer Services & Leisure Page 2 212, CBRE
City Centre Office Take-Up Q1 21 4, Dublin 1/3/7 Dublin 2/4 Dublin 6/8 IFSC 35, 3, 25, 2, 15, CITY CENTRE MARKET Headlines The city centre accounted for more than 75% of overall take-up in Dublin in Q1 The city centre vacancy rate was 23% at the end of the first quarter while the vacancy rate in Dublin 2/4 was 16.8% The two largest office lettings in Dublin in Q1 were located in the Dublin 1/3/7 district in the city centre MarketView Dublin Office 1, 5, 3% 22% Q1 21 Q2 21 Q3 21 Q4 21 Q1 211 Q2 211 Q3 211 Q4 211 City Centre Take-up by Tenant Category 1% 2% 45% Business Services Financial Services Computers/Hi-Tech Manufacturing, Industrial & Energy Consumer Services & Leisure Take-up of some 18,188m 2 was achieved in Dublin city centre during the first quarter of 212, compared to 36,332m 2 of lettings in this district in same quarter last year. There were 2 individual lettings signed in Dublin city centre in the three month period, 11 of which were located in the Dublin 2/4 district. In quantum terms, just over half of the office take-up signed in Dublin city centre during was located in the Dublin 2 and Dublin 4 postcodes. Dublin 1/3/7 accounted for over 4% of city centre take-up in the quarter as a result of the two largest office lettings in the city in Q1 being located in Eastpoint in Dublin 1. At the end of the quarter, the vacancy rate in Dublin city centre stood at 23%. There was approximately 488,m 2 of office accommodation being marketed to let in the city centre at the end of Q1, of which approximately 56% was located in the Dublin 2/4 postcode. Over 6% of all office accommodation being marketed to let in Dublin city centre is classified as Grade A although there are over 155 different instances of vacancy which suggests that most of this accommodation is relatively small. Prime Headline Dublin Office Rents Q1 28 Q1 212 According to our research, there is demand for just under 1,m 2 of office accommodation in Dublin city centre at the end of. This equates to just less than 54% of total outstanding requirements for office accommodation in the capital. 7 6 5 673 Business services tenants accounted for 45% of city centre take-up during with computers/hi-tech occupiers and financial services companies accounting for a further 3% and 22% of city centre letting activity in the period respectively. 4 3 2 Q1 28 Q2 28 Q3 28 Q4 28 Q1 29 Q2 29 Q3 29 Q4 29 Q1 21 Q2 21 Q3 21 Q4 21 Q1 211 Q2 211 Q3 211 Q3 212 296 Q4 212 Prime quoting headline office rents in Dublin city centre stabilised at 296 per square metre during Q1, although rents in non-prime buildings are likely to continue to come under further pressure. Page 3 212, CBRE
MarketView Dublin Office SUBURBAN MARKET Headlines Suburban take-up accounted for less than 25% of overall Dublin office letting activity in Q1 Suburban take-up down more than 5% on a quarterly and annual basis in Strong increase in demand for suburban office accommodation quarter-on-quarter Suburban Office Take-up Q1 21 18, North Suburbs South Suburbs West Suburbs 16, 14, 12, 1, 8, 6, 4, 2, There were only 5,99m 2 of lettings signed in the Dublin suburban office market in, which is a disappointing level of letting activity for this submarket. The south suburbs accounted for 52% of overall suburban office take-up in Dublin in the three month period. The west suburbs accounted for a further 25% of take-up in Q1 while the north suburbs accounted for the remaining 23%. 25, Q1 21 Q2 21 Q3 21 Q4 21 Q1 211 Q2 211 Q3 211 Suburban Q1 Office Take-up 27-212 Q4 211 The most significant lettings signed in the suburbs in the first quarter of the year included the letting of 1,966m 2 to Mylan in Newenham House in the north suburbs and the letting of 681m 2 at Maple House in the south suburbs to Interaction. 2, 15, 1, There were 12 office lettings signed in the Dublin suburbs in. Business services tenants accounted for 14% of suburban take-up in Q1, while consumer services tenants accounted for 11% of suburban take-up in the quarter. Manufacturing, industry and energy tenants accounted for more than half of suburban take-up in the period, while computers/hi tech companies accounted for a further 21% of letting activity in the suburbs during Q1. There were no lettings to financial tenants or to public sector tenants in the suburbs in the first three months of 212. At the end of, total vacant office stock in the Dublin suburbs stood at approximately 34,m 2. Total vacant stock in the south suburbs stood at almost 147,m 2 in Q1 212, bringing the vacancy rate there to 14.5%, compared to 14.% at the end of Q4 211. The vacancy rate in the suburbs overall also increased slightly quarter-on-quarter to 23.2%. Demand for suburban office accommodation stood at over 83,m 2 as of the end of, compared to 27,m 2 the previous quarter following a number of large requirements being announced. Prime headline quoting rents for office accommodation in the south suburbs were in the order of 172 per square metre at the end of Q1 compared to 151 per square metre in the north suburbs and 134.5 per square metre in the west suburbs of the city. 54% 5, Q1 27 Q1 28 Q1 29 Q1 21 Q1 211 Suburban Office Take-up by Tenant Category Q1 212 11% 14% 21% Business Services Computers/Hi-Tech Manufacturing, Industrial & Energy Consumer Services & Leisure Page 4 212, CBRE
European Office Take-Up Q2 22 Q4 211 ('s) Square Metres 4,5 Western Europe CEE 4, 3,5 3, 2,5 2, 1,5 1, EUROPEAN OFFICE MARKET Headlines Office take-up across Europe remains broadly stable although occupiers are unsettled by economic uncertainty Availability continues to contract across Europe, albeit slowly Prime rents broadly flat across Europe for the third consecutive quarter in Q4 Development completions 45% below their cyclical peak in Western Europe MarketView Dublin Office 5 Q2 22 Q4 22 Q2 23 Q4 23 Q2 24 Q4 24 Q2 25 Q4 25 Q2 26 Q4 26 Q2 27 Q4 27 Q2 28 Q4 28 Q2 29 Q4 29 EU Office Rent Index Q4 22 Q4 211 Q2 21 Q4 21 Q2 211 Q4 211 Total office take-up across Europe in the last quarter of 211 was slightly up on the previous quarter and broadly stable on an annual basis. Overall gross take-up for the full year in 211 was slightly down on the previous year. However, uncertainty about the economic outlook has been contributing to higher levels of caution among corporate occupiers and hindering leasing activity levels. 2 = January 2 28 26 24 22 2 18 % Change pa Nominal Terms Index 15% 1% 5% % -5% -1% The availability of office accommodation across Europe continues to contract. The EU-27 vacancy rate dropped to 1.35% during Q4 211, down from its peak of 1.46% in the first quarter of 211. Although supply levels seem past their peak in most cities, weak occupier demand means that the absorption of vacant stock could be a very slow process despite completions running close to their historic lows or in the case of Dublin having come to a complete halt. This is also reflected in the uneven pattern of vacancies across different cities. 16-15% Dec-2 Dec-3 Dec-4 Dec-5 Dec-6 Dec-7 Dec-8 Dec-9 Dec-1 Dec-11 European Vacancy & Supply Pipelines Q4 211 5 Development Pipeline to end 213 Vacancy Rate Q4 211 45 4 35 3 Prime office rents remain broadly flat across Europe for the third consecutive quarter in Q4. The CBRE EU-27 Office Rent Index grew by only.2% on the previous quarter and by only 1.% year-on-year. Prime rents remained stable in almost all European markets in Q4 211, while some cities are still seeing or expect to see some further reductions. The volume of development completions has fallen sharply across Europe with no significant improvement in prospect over the next two years as weaker demand and weak rental growth, combined with limited access to funding continue to restrict speculative development across the region. % 25 2 15 1 5 Kyiv St Petersburg Sofia Belgrade Warsaw Zagreb Bucharest Bratislava Dublin Budapest Frankfurt Moscow Prague Barcelona Amsterdam Madrid Milan Dusseldorf Lisbon Brussels Hamburg Berlin Vienna London City Munich Paris Copenhagen London West End Page 5 212, CBRE
MarketView Dublin Office INVESTMENT Headlines 3 office investment sales completed in Dublin in Welcome measures in Budget 212 for the investment sector Prime office yields now 7.25% Following a year in which transactional activity in the investment sector of the Irish market was stymied by proposals to reform rent review provisions in existing business leases, it is encouraging that some assets are now being traded. On Budget day last December the Government announced its decision not to proceed with rent review reform. It also announced a welcome reduction in the rate of stamp duty on commercial property from 6.% to 2.% and introduced a capital gains tax waiver on all properties purchased before the end of 213 (if held for a period of 7 years). A combination of all three measures have restored some confidence in this sector and the stamp duty change had the effect of bringing the IPD index of commercial property values back into positive territory in Q4 211 following fifteen consecutive quarters in which Irish commercial property values declined. Office investment properties which sold during include the Smurfit Kappa headquarters in Clonskeagh; Texaco House (a showroom building let to Audi in Ballsbridge, Dublin 4) and a building at The Exchange in Tallaght, Dublin 24. In total, just over 2 million was invested in the Irish investment market in, of which office investment sales comprised 18.5 million or 92%. Two significant office investment assets are now under offer in the Dublin market. One Warrington Place, the headquarters of Bord Gáis is now believed to be under offer to a US buyer (following negotiations breaking down with the original bidder) and Riverside II in Dublin Docklands is reportedly under offer to a German fund. Both properties attracted considerable investor interest and will be important benchmarks for pricing in a market that has been starved of meaningful transactional evidence for some time. Dublin office properties being marketed for sale at present include four office blocks at AIB Bankcentre which are guiding 85 million and two Bank of Ireland bank branches in St Stephen s Green and Arran Quay in Dublin, which are guiding 6.25 million and 1.3 million respectively. Irish Investment Spend 23 8. 7.5 7. 6.5 6. 5.5 5. 4.5 4. 3.5 3. 3.5 3. 2.5 2. 1.5 1..5. London - Central - West 23 24 25 26 27 28 29 21 211 Prime Office Yields Q4 211 vs High/Low of Current Cycle Zurich Current Yield Cyclical Low Cyclical High Geneva Paris Ile-de-France Stockholm Munich Hamburg Copenhagen Frankfurt Berlin Dusseldorf Oslo Vienna Milan IPD Irish Capital Value & Total Returns Q4 28 Q4 211 5 Total Returns Capital Value Growth London - Central - City Amsterdam Helsinki Rome Barcelona Madrid Manchester Birmingham Edinburgh Glasgow Brussels Warsaw Prague Budapest Dublin Lisbon A large number of overseas investors continue to seek out opportunities in the Irish market, particularly now that the Government have confirmed that they will not be proceeding with the implementation of retrospective legislation on upward only rent reviews. Most of these investors are focussed on prime office and retail properties. However, ironically, there is a lack of prime product to satisfy international demand and it remains to be seen what volume of assets come to the market over the coming months. We believe that prime office investment yields in Dublin are now in the order of 7.25%. % -5-1 -15-2 Dec-8 Mar-9 Jun-9 Sep-9 Dec-9 Mar-1 Jun-1 Sep-1 Dec-1 Mar-11 Jun-11 Sep-11 Dec-11 Page 6 212, CBRE
DUBLIN OCCUPATIONAL MARKET STATISTICS Q1 211 Q2 211 Q3 211 Q4 211 Take-up 49,447M 2 34,149M 2 43,215M 2 35,588M 2 24,97M 2 Overall Vacancy Rate 23.% 22.8% 22.5% 22.96% 22.9% City Centre Vacancy Rate 23.% 23.% 22% 23% 23% MarketView Dublin Office Dublin 2/4 Vacancy Rate 17.4% 17.3% 16.3% 16.8% 16.8% Suburban Vacancy Rate 22.9% 22.8% 22.9% 23.5% 23.2% South Suburbs Vacancy Rate 14.7% 14.5% 14.4% 14.% 14.5% Office Investment Spend 124.5 million 149.25 million 6.125 18.5 million Prime Yield 7.25% 7.5% 7.5% 7.5% 7.25% MAJOR DUBLIN OFFICE LETTINGS Q4 211 Occupier District Size (M 2 ) Property Blocks J & K East Point Dublin 1/3/7 4,88 Arvato Block P Eastpoint Dublin 1/3/7 2,959 Google Various Floors, Hume House Dublin 2/4 2,539 AIB First and Second Floor, Wilton Plaza Dublin 2/4 2,88 LinkedIn Newenham Court North Suburbs 1,966 Mylan Third Floor, The Observatory Dublin 2/4 1,679 RealEx Nationality of Dublin Office Occupiers 21% (6 lettings) 38% (14 lettings) 1% (1 letting) Irish US UK Other 4% (11 lettings) Page 7 212, CBRE
MarketView Dublin Office Managing Director Guy Hollis TENANT ADVISORY SERVICES Paddy Conlon Sarah Ward OFFICE AGENCY Willie Dowling Alan Moran Paddy Cormican WE KNOW OFFICES FROM TOP TO BOTTOM DEVELOPMENT CONSULTANCY Wesley Rothwell Email Firstname.lastname@cbre.com CBRE Burlington Road Dublin 4 Ireland t: +353 1 618 55 NO ONE KNOWS OFFICES QUITE LIKE To access market leading advice, talk to CBRE office agency today. www.cbre.ie For more information regarding the MarketView, please contact: CBRE Dublin Research Marie Hunt Executive Director e: marie.hunt@cbre.com Suzanne Barrett Associate Director e: suzanne.barrett@cbre.com Elaine Linnane Database Manager e: elaine.linnane@cbre.com Disclaimer 212 CBRE Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE Ireland. Page 8 212, CBRE