DUBLIN OFFICE MARKET OVERVIEW Q3 2015 - RESEARCH - Knight Frank
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RESEARCH DUBLIN OFFICE MARKET OVERVIEW Q3 2015 OCCUPIER TRENDS INVESTMENT TRENDS MARKET OUTLOOK
SUMMARY DUBLIN OFFICE OUTLOOK
Development pipeline insufficient to cater for
1. Economic growth of 6% employment growth.
expected for 2015
Economy levels commensurate with an advanced
European economy.
2. Rental appreciation continues
with prime rents currently in the The pace of economic expansion
The growth in employment continues
order of €55 psf accelerated in the third quarter with the
to be the most positive aspect of the
Economic and Social Research Institute
economic expansion, with employment
(ESRI) now forecasting GDP growth of
3. Q3 take-up was 543,570 sq.ft. up 158,000 from its low point in Q1 2012.
6.0% for 2015, which represents a While this rate of job creation is
with the city fringe and south
substantial increase from the 4.4% growth impressive, it is the high-value nature
suburbs witnessing an increase
projected earlier in the year. Ireland’s GDP of the roles being announced that is
in activity
has now surpassed the previous peak most encouraging with IBM, NIIT, SAS
level achieved in 2007 with next year’s and Parexel all recently announcing
4. Office investment activity forecast putting it comfortably at the top between 100-200 positions each.
slows due to a lack of available of the European growth league table for a Furthermore, Accenture are also to create
opportunities third year in a row. The current rate of 200 new jobs in their new Innovation
expansion is remarkable, being of a level Centre based in Grand Canal Square.
5. Analysis of office development that we more commonly associate with The Innovation Centre will feature
pipeline show fears of emerging market economies rather than a research jobs in cognitive computing,
oversupply are overstated high-income economy such as Ireland. In the internet of things, advanced analytics,
the current environment, Ireland security and digital marketing, helping to
effectively offers investors exposure to strengthen Dublin’s position as a leading
emerging market growth rates at risk global technology hub.
FIGURE 1
How much prime office space does €100 million buy? sq.ft.
KNIGHT FRANK
VIEW ON RISK
LONDON (WE) 22,573
ZURICH 47,809
Research by Knight Frank shows that €100
PARIS 50,232 million buys approximately 81,820 sq.ft. of
GENEVA 51,949 prime Dublin office space at the end of the
STOCKHOLM 81,545 third quarter. This now makes the Dublin
DUBLIN 81,820
the sixth most expensive office location in
MILAN 96,875
MUNICH 97,499 Europe leading to fears that Dublin may
OSLO 101,885 becoming uncompetitive. However, despite
FRANKFURT 103,183 the relatively high costs, Dublin is still nearly
HELSINKI 129,112 four times cheaper than London,significantly
MADRID 135,395
EDINBURGH 142,999
cheaper than Zurich, Paris or Geneva and
HAMBURG 152,489 approximately in-line with Stockholm.
MOSCOW 155,548 Furthermore, research released in the third
VIENNA 160,239 quarter by IBM found that Ireland has ranked
BERLIN 162,222
first in the world for a fourth successive year
AMSTERDAM 166,207
COPENHAGEN 200,986 for average jobs value of investment projects.
BRUSSELS 206,308 Entitled ‘2015 Global Locations Trends’, the
BARCELONA 218,498 report states that Ireland “continues to attract
WARSAW 233,998
investment project in industries characterised
PRAGUE 252,998
LISBON 290,916 by high knowledge intensity and economic
BUDAPEST 325,159 value added, such as life sciences and
BUCHAREST 373,747 information and communication technology”.
As the capital city and headquarters for many
of these high-value companies in Ireland, it
follows that Dublin can sustain a relatively
high prime rental level.
Source: Knight Frank Research
2DUBLIN OFFICE MARKET OVERVIEW Q3 2015 RESEARCH
The recovery in the economy is of activity is required in the fourth quarter a substantial decline from the 60% share
increasingly being driven by domestic of 2015 for volumes to exceed last year’s it held in 2014 as firms searched outside
demand, which is just as well given the levels. Given the number of deals that the city core for available space. This is
anaemic global growth forecast by The are due for completion before the end reflected in the fact that the south suburbs
International Monetary Fund contained in of year, the sentiment amongst office and the city fringe accounted for 28% and
its latest ‘World Economic Outlook’ agents is that 2015 activity will indeed 20% respectively in quarter three, which
briefing. The IMF is predicting global surpass 2014 levels, which would make compares to 14% and 12% during the
economic growth of 3.1% for 2015, down it the third highest year on record behind full-year 2014. Notable deals completed
from the 3.8% forecast at the start of the 2007 and 2006 respectively. in the south suburbs include financial
year, and represents the lowest rate of software firm Sage’s taking of 45,000
The largest letting in the third quarter
growth since 2009 as China’s slowdown sq.ft. at Central Park, APC’s taking of
was Twitter’s taking of 85,000 sq.ft. at
continues to weigh heavily on sentiment. 30,000 sq.ft. at Cherrywood and AbbVie
Cumberland House for a term of 20-years
As one of the few growth markets moving taking of 19,986 sq.ft. at Citywest.
and at a rent of €50.00 per sq.ft. As part
in the opposite direction to the trend, of the terms of the letting, which equates
Ireland should attract further international
capital market allocations as investors
to three quarters of the building’s total
floorspace, Hibernia will undertake a
Development Market
search for growth opportunities. €27 million refurbishment of the property, The office development land market built
with the social media company expected further momentum in the third quarter with
Occupier Market to take occupation in the second quarter a number of schemes proposed. However,
with access to development finance
of 2016.
A total of 543,570 sq.ft. of office space remaining an issue, it is likely that many of
was let in the third quarter, which The second largest transaction was the projects announced are unlikely to be
represented the highest letting activity Workday’s taking of 75,000 sq.ft. at built within the time frame publicised.
for a third quarter in over five years. Total the Kings Building in Smithfield. The
activity for the first nine months of 2015 deal came as the company announced
that it is planning to expand its Dublin FIGURE 3
now stands at 1.73 million sq.ft., which
workforce to 600 strong, with the Office take-up sq.ft.
represents a 25% increase on the same
period last year. As the market still awaits Kings Building becoming its European
Headquarters. The tech firm became 3,500,000
a significant supply of new office stock
to come online, the scarcity of available the first tenant to lease space in the
3,000,000
accommodation continues to drive rental Kings Building since its completion in
appreciation with prime grade A rents 2008 when it took 85,000 sq.ft. in the 2,500,000
now in the order of €55.00 per sq.ft. third quarter of last year. Workday’s
expansion is indicative of the aggressive 2,000,000
Despite the strong level of activity pace with which international technology
1,500,000
recorded in the year so far, it remains firms are increasing their footprint in
to be seen whether full-year take-up Dublin at the moment. 1,000,000
will exceed market activity achieved in
The lack of available city centre space
2014. With 1.1 million sq.ft. let in the final 500,000
has led to greater leasing activity in the
quarter of 2014, over 750,000 sq.ft. worth
city fringe and suburban areas. Although 0
04 05 06 07 08 09 10 11 12 13 14 15
the city centre still had the highest 20 20 20 20 20 20 20 20 20 20 20 20
3
FIGURE 2 take-up in the third quarter with a market Q
Dublin prime office rents share of 36%, the figure represents Source: Knight Frank Research
€ per sq.ft. per annum
70 70
Top 5 office leasing transactions
60 60
Property Tenant Sector Size
50 50
Cumberland House, Dublin 2 Twitter TMT 85,000 sq.ft.
(7,897 sq m)
40 40
Kings Building, Dublin 7 Workday TMT 75,000 sq.ft.
30 30 (6,968 sq m)
No.1 Central Park, Dublin 18 Sage TMT 45,000 sq.ft.
20 20 (4,181 sq m)
Rental
10 Forecast Block
10G2, Cherrywood APC Pharma 30,000 sq.ft.
(2,787 sq m)
0 0
14 Riverwalk, Citywest, AbbVie Pharma 19,986 sq.ft.
2006
2004
2005
2007
2008
2009
2010
2012
2013
2015
2016
2017
2018
2019
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
H1 2015
2011
2014
Dublin 24 (1,857 sq m)
Source: Knight Frank Research Source: Knight Frank Research
3PO
RT
L
DUBLIN OFFICE MARKET OVERVIEW Q3 2015 RESEARCH
AN
D
RO
W
POTENTIAL DELIVERY KEY
CURRENTLY WITHOUT CONNOLLY
TRAIN STATION DART RAIL LINE
PRE-LET 2016 -2018 LUAS TRAM LINE NORTH
LUAS TRAM LINE SOUTH
NEW LUAS CROSS CITY LINE
O‘ C O
ET
SDZ BOUNDARY
TRE
NNEL
Dublin Exchange Facility SHERIFF ST
REET UPPE
SS
Size: 110,000 sq.ft.
R
L STR
IEN
Project Wave
D
Size: 200,000 sq.ft.
AM
E WALL ROA
EET
THE CONVENTION
CENTRE
AY
N QU 3ARENA
ED E 1-6 Sir John Rogerson’s Quay
Estimated Size: 102,000 sq.ft.
ES QUAY
ORG
GE
Y 76 Sir John Rogerson Quay
QUA CITY QUA Size: 69,000 sq.ft.
ON Y
AST
GRAND CANAL
TRINITY COLLEGE Windmill Lane Site ENERGY THEATRE
DUBLIN Size: 121,000 sq.ft.
1 Molesworth Street
Size: 71,000 sq.ft. Capital Docks
NORTH PEARS Size: 310,000 sq.ft.
SUBURBS 10 Molesworth Street E STRE
Size: 118,000 sq.ft. ET
GRAFTON
ET
ST
STREET
N STRE
32 Molesworth Street
ARE
Size: 32,000 sq.ft.
KILD
MO GR Bolands Quay
DAWSO
UN AN Size: 276,000 sq.ft.
GOVERNMENT TS D
TR CA
BUILDINGS MERRION EE N AL
SQUARE TL ST
OW LO
ER W ER
CORE ST STEPHEN’S
WEST GREEN
Hume Street Hospital UE
SUBURBS
DUBLIN BAY CUFFE STREET
Size: 50,000 sq.ft. Kestrel House BATH AVEN
4/5 Harcourt Road Size: 51,000 sq.ft.
Size: 45,000 sq.ft. Miesian Plaza
Size: 219,000 sq.ft.
RD
R
LE 47 - 49 St. Stephen's Green ON
PE
T AVIVA STADIUM
ES Size: 21,000 sq.ft. D ING
UP
NO
CAMDEN STREET L
D
HA
ON
SOUTH
RTH
Haddington Buildings
ST
ST
SHELB
SUBURBS R
WE
Size: 76,000 sq.ft.
IAM
U
HATCH STR O
LO
EE T L
MB
BA
ILL
WE
E ROAD
GG
OURNE ROA D
ER L
LinkedIn HQ Site
ZW
OT
R
Grand Canal/Fitzwilliam Sq S
FIT
TREET
AND
Floorspace: 100,000 sq ft UPPER
74/75 Lower Baggot Street
CH
Delivery date: Feb 2017
ILL
RO
OWER
Size: 45,000 sq.ft.
AR
NV
AD
LE
O
IT
M
ON
Franklin House TR
T
Size: 25,000 sq.ft. One Ballsbridge
ST
21 Charelmount
Size: 175,000 sq.ft.
Size: 36,000 sq.ft. Charlemont Dairy
RA
Size: 57,500 sq.ft.
Burlington House
NE
Size: 172,000 sq.ft.
LA G
L EE
SO
H RO
N
ST
UP
AD
Note: All figures contained above are approximate estimates only and subject to change
PE
R
4 5Given the risk adverse environment that Street as well as including office
FIGURE 5
still persists, capital funders have a strong blocks in Liffey Valley Office Park,
Irish commercial investment
preference for a substantial portion of Blanchardstown Corporate Park and
volumes € million
any development to be pre-let in order to Eastgate Business Park in Cork.
minimise risk. 5,000 5,000
The largest single office lot sale of
The most noteworthy proposal 2015 transacted in the third quarter
announced in the third quarter was with the Central Bank purchasing the 4,000 4,000
the planning application by Nama for 127,000 sq.ft. Block R in Spencer Dock
a 224,500 sq.ft. office building at the for €104 million, a property which
Point Village on the north docklands. the authority was letting half of on a 3,000 3,000
At 73 metres tall, ‘THE ‘EXO’ would be twenty-five year lease from 2008. The
the tallest building in Ireland and form one sale was significantly ahead of the €90
2,000 2,000
part of a landmark harbour entrance to million guide, with the price achieved
Dublin City along with Kennedy Wilson’s/ representing a capital value of €819 per
Nama’s Capital Dock development on square foot. 1,000 1,000
the south side of the river. Green REIT
meanwhile have won their appeal against With the construction of its new
An Taisce to develop 71,000 sq.ft. on the headquarters underway just a stone’s 0 0
throw from Block R, the Central Bank
20 4
20 5
06
20 7
20 8
20 9
20 0
20 1
20 2
2 3
3 4
15
corner of Dawson Street and Molesworth
0
0
0
0
0
1
1
1
1
Q 01
20
20
20
20
Street with construction due to start is obviously committed to keeping its
long-term footprint in the Spencer Dock Source: Knight Frank Research
before the end of the year with
the property to branded as One area. The next largest sale in quarter
Molesworth Street. three was at a dramatically reduced
lot size with Aviva’s acquisition of One FIGURE 6
Grants Row for €8.5 million serving to Dublin prime office yields
Investment illustrate what a quiet quarter it was for 8%
office investments.
Retail transactions dominated investment
activity in the third quarter with a lack of Despite the slowdown, the office market 7%
available office investment opportunities still accounts for the largest share of
rather than a lack of investor demand investment properties transacted this
6%
behind the low volumes. Indeed, the year with approximately 60% of the €2.2
largest investment transaction of the billion worth of deals comprising of office
quarter was the purchase of the retail investment sales. Although prime office 5%
focused Sovereign Portfolio by Irish Life yields remain unchanged from quarter
for approximately €150 million. The office two at 4.5%, the out-performance of 4%
element of the portfolio was substantial the Irish economy in a European context
however, and included significant above combined with the continuation of the
ECB quantitative easing programme will 3%
ground floor office lots along Merrion
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Q3 2015
Row, Dawson Street and Westmoreland continue to exert downward pressure on
yields in the coming quarters.
Source: Knight Frank Research
FIGURE 4
Q3 take-up by location
Top 5 office investment transactions
NORTH
SUBURBS
WEST
SUBURBS
Property Seller Buyer Approx price
12% 4%
28%
WEST
Sovereign Portfolio Royal London
SUBURBS IrishNORTH
Life €150.0 million
SUBURBS
FRINGE
(Retail and Office)
12
Asset Management
4%% 4%
SOUTH
20% Block R Spencer Dock, Nama Central Bank €104.0 million
28%
SUBURBS Dublin 1 of Ireland
FRINGE
CITY CENTRE
One Grants Row, Dublin 2
14-16 Lord Edward Street,
Reciever PWC
SOUTH
SUBURBS
Private
20%
Aviva
Private
€8.5 million
€7.2 million
36% Dublin 2
CITY CENTRE
36%
13 Pembroke Row, Receiver Grant Thornton Irish €5.8 million
Dublin 2 Developers
Source: Knight Frank Research Source: Knight Frank Research
6DUBLIN OFFICE MARKET OVERVIEW Q3 2015 RESEARCH
SPECIAL FOCUS:
OFFICE CONSTRUCTION PIPELINE 2016-2018
BACKGROUND: with 56,000 jobs having been created in • This figure includes owner occupier
THE DEMAND FOR OFFICE the year to Q3 2015. buildings such as the Central
SPACE 2016 -2018 • It is assumed that approximately half of
Banking building on the North Lotts
As previously mentioned in this report, and the Microsoft development in
the jobs created in Ireland will be located
the rate of jobs growth has been the most Leopardstown. It is also includes pre-
in Dublin. This is based on the fact that
positive aspect of the economic recovery. lets such as Aer Cap’s leasing of LXV on
53% of jobs in 2014 were created in
This trend is forecast to continue with the the corner of St. Stephens Green and
Dublin according to the CSO.
ESRI projecting that 52,000 new jobs will Bank of Ireland’s taking of Baggott Plaza
have been created by the end of 2015 • According to the ‘Recovery Scenario’ on Upper Baggott Street.
with a further 48,000 projected in 2016. contained in the ‘Occupational • With 1/3 of the upcoming supply already
The rapid pace of job creation has clearly Employment Projections 2020’ published let, this implies that approximately 1.0
come with a price however, by creating by the government agency ‘Solas’ in million sq.ft. of the new construction that
a severe shortage of grade A office 2014, half of new jobs will be in the white comes on stream will become available
space in Dublin and a consequent rapid collar sector. to rent on annual basis for occupation
appreciation in grade A rents.
• Using the above assumptions and which is just half the ten-year gross
While the real estate industry was applying an average net density of 130 take-up average of 2 million sq.ft. per
initially slow to cater to this emerging per sq.ft. gives an annual requirement annum.
demand, a significant supply response of 1.625 million square feet based on
has since initiated with a number of new employment growth.
construction projects in the pipeline. FIGURE 7
Indeed, the extent of schemes now • Applying a conservative obsolescence Forecast supply sq.ft.
planned has led some to question whether rate of 1% to the existing 38 million
2,500,000
there is now too much space coming on- square feet of office space and LET
stream which may have an adverse effect SPECULATIVE
combining it with the requirement based
on the market in the future. However, on employment growth implies that there 2,000,000
based on our analysis of both the office is a need for just over 2 million sq.ft. of
construction pipeline and employment office space per annum.
forecasts, these fears are unfounded with 1,500,000
the quantum of space due to be delivered SUPPLY:
insufficient to meet emerging demand. UPCOMING PIPLINE 2016 - 2018 1,000,000
• Based on our analysis of upcoming
DEMAND: developments, redevelopments and
METHOD AND ASSUMPTIONS 500,000
refurbishments, there is approximately
1. METHOD 4.5 million sq.ft. of Grade A office space
Our approach follows established due to come on stream between 2016 0
2016 2017 2018
methodology of forecasting office need and 2018. This works out as an average
based on the two principal drivers of office of 1.5 million sq.ft. per annum. Source: Knight Frank Research
demand:
• 1
. Employment forecasts – projected Demand calculations
employment growth can be used to
estimate the space needed for extra Assumptions Total Basis
workers in the economy given an
Ireland employment forecast p/a 50,000 Recent trends
assumed space per worker allocation.
Dublin employment forecast p/a 25,000 Half of Ireland jobs created to
2. Obsolescence – In order to account
• be Dublin based
for space that needs to be replaced due Dublin office employment forecast p/a 12,500 Half of Dublin based jobs to
to the functional and physical obsolesce be office based
of existing office stock due to the Net density per employee per sq.ft. 130 Knight Frank Research
passage of time.
Annual sq.ft. required to cater for 1,625,000
2. ASSUMPTIONS INCOPORATED employment growth
Annual sq.ft. replacement rate of existing 380,000
• Employment growth in Ireland of 50,000
stock @ 1%
per annum between 2016 and 2018.
This target is in line with current trends Total requirement per annum sq.ft. 2,005,000
7SUMMARY: factor in the significant pent-up demand CAPITAL MARKETS
KEY CONSIDERATIONS that was likely to have been created Adrian Trueick, Director
in 2015 due to the combined forces of +353 1 634 2466
In conclusion, our forecast of the office
high employment growth, a prevailing adrian.trueick@ie.knightfrank.com
market has illustrated that fears regarding
low vacancy rate and lack of new space Peter Flanagan, Director
market oversupply have little basis in
delivered to the market during the year. +353 1 634 2466
reality with the projections showing that
the current development pipeline peter.flanagan@ie.knightfrank.com
is insufficient to cater for existing and Deficit Analysis Ross Fogarty, Associate Director
future demand. +353 1 634 2466
Total ross.fogarty@ie.knightfrank.com
The projections suggest that we are facing
an annual deficit of 505,000 sq.ft. between Demand p/a 2,005,000 sq.ft. Damien McCaffrey, Associate Director
+353 1 634 2466
2016 and 2018, or a total of 1,515,000
Supply p/a 1,500,000 sq.ft. damien.mccaffrey@ie.knightfrank.com
sq.ft. cumulatively over the period.
Deficit p/a 505,000 sq.ft. John Ring, Investment Analyst
Furthermore, the estimate is likely to +353 1 634 2466
understate the true deficit as it does not Source: Knight Frank Research john.ring@ie.knightfrank.com
OFFICES
Declan O’Reilly, Director
+353 1 634 2466
declan.oreilly@ie.knightfrank.com
Paul Hanly, Director
+353 1 634 2466
paul.hanly@ie.knightfrank.com
Jim O’Reilly, Director
+353 1 634 2466
jim.oreilly@ie.knightfrank.com
Daniel Shannon, Director
+353 1 634 2466
daniel.shannon@ie.knightfrank.com
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