Davy Private Clients Insights


MarketWatch January 2017

Property: Cranes Back on the Skyline

robin-potter-cogan-author.jpg Robin Potter Cogan
Director, Davy Real Estate

Cranes are once again a common sight on the Dublin skyline. 2016 saw the number of large office developments under construction in the city centre increase significantly.



This article is from our latest edition of MarketWatch, an in-depth report focusing on the economic and political outlook for 2017.  

The statistics

Currently there is 4 million sq ft under construction, which will increase the office stock by approximately 10%. This space is scheduled to be delivered on a staggered basis from 2017 to 2019. Of the space under construction, about 1 million sq ft has been pre-let and 3 million sq ft is speculative and will need to be leased.

The take up of office space in the first nine months of 2016 was in the region of 1.85 million sq ft and the annual take up over the last five years has been between 1.5 million sq ft and 2.5 million sq ft. Since 2013, net absorption (space leased less space left vacant) has averaged 0.938 million sq ft. This suggests that the remaining space being developed equates to between two and three years’ supply.

As would be expected, take up tends to favour newer buildings while older, inefficient buildings are left unoccupied.

Availability of development finance

In addition to the space currently under development, there is planning for another 37 schemes totalling 4.6 million sq ft. However, one of the key features of the current development cycle has been the lack of development debt from the traditional banking sector. The domestic banks have not financed speculative schemes so far and they have been very selective in funding schemes fully or partially pre-let. This has meant that:

  • Most of the domestic developers currently developing schemes are ungeared or lowly geared. These include Green REIT (Real Estate Investment Trust), Hibernia REIT, IPUT and Clancourt which make up a significant proportion of the total area under development.
  • Foreign groups have more success in sourcing development funding for their projects through their existing relationships with foreign banks.
  • There have been some examples of foreign banks funding Irish developers on speculative schemes, but these have been very developer and project-specific and focused on larger schemes.

The debt funding market has moved from being very tight to tight and funding for speculative schemes has been project and developer-specific. We do not see this changing in the medium term, given the proximity of the 2007 crash and the depth of the capital value fall that resulted. Therefore, we see the development pipeline continuing to progress slowly and being very reactive to the letting market.

The likely outcome?

Assuming leasing levels remain at recent levels, the additional space should be leased in an orderly fashion creating low to medium pressure on rents. What factors could influence leasing levels?

  • A general macroeconomic-led slowdown.
  • A fresh Eurozone crisis or initiatives by the new US president to repatriate US company functions could adversely affect leasing.
  • A change in perception of Ireland as a place to locate functions and businesses. This is not borne out directly by any discussions we have had with occupiers. However, changes to tax regimes or issues around office or residential availability can get broad transmission and change views quickly.
  • On the positive side, we are seeing enquiries following the Brexit vote. It is likely that banks and other groups selling into the European Union (EU) will feel the need to establish operations in the EU and Dublin should get its share of this flow.

There is a lot of space under construction and the additional space could place pressure on current rental rates. At present leasing rates suggest the space coming to market should be mopped up reasonably quickly. But at some stage over the next few years any slippage in leasing rates will put rents under pressure. 

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