The comparative investment performance of Dublin’s key office markets, by location, is outlined in the new BNPPRE commercial property report, Dublin Office Investment Market Analysis 2019, published this week.
The report was Prepared in conjunction with market analysts, MSCI, the report charts another record year in the Dublin office market, in terms of take-up and returns.
The report shows that 2018 was an exceptionally strong year for Ireland’s commercial property market overall with investment in direct real estate still outperforming both equities and bonds. While investment turnover across all sectors reached €3.6 billion, offices accounted for more than 40% of this total. This is the fifth consecutive year where total turnover exceeded the 10-year average, with the €3.6 billion total investments representing an increase of 43% relative to 2017.
Total Dublin office returns of 9.2%, on a standing investment basis, in the year to December 2018 represents a notable strengthening, compared with the total return of 6.2% recorded in 2017. BNPPRE say strong interest among investors and occupiers alike in office property in Dublin is evident across city and suburban locations, with several high-value transactions contributing to a higher than expected outturn for 2018.
The report shows that the largest lettings included Facebook’s 75,000sq.m take-up of the AIB Bankcentre Campus; Google’s 20,000 sq.m lease at Bolands Mills; and Hubspot, who committed to 10,000sq.m in One Sir John Rogerson Quay.
Dublin office rental inflation was recorded at just 1.8% last year, compared with 3.2% at the end of 2017. Again variations have been seen across the different submarkets, with offices in Blackrock and Dún Laoghaire recording particularly strong rental value growth during the period. Rents are still currently at a level just 3% below the peak recorded in 2008, and the high proportion of pre-lets evident means the market is unlikely to see an oversupply of office stock any time soon.
The full sector continues to generate strong returns, boosted by robust occupier demand, with growth spreading to secondary city fringe and suburban locations. Capital growth for the All Dublin Office sector to year end is put at 4.5%. Equivalent yields stood at 5.4% in December 2018, representing a decline of 13.7bps relative to December 2017. Yield compression has been recorded across six of the eight office submarkets since last year’s BNPPRE Dublin office market report, with just Blackrock & Dún Laoghaire and the South Docks submarket recording slight increases.
The report notes that developers and investors are recognising the appeal of Ballsbridge in Dublin 4 too, which looks set to be home to the expansion of the Silicon Docks in the coming years.
The regeneration of Dublin 1 and improved transport links via the new LUAS Cross City line is noted as further enhancing the city centre location for office occupiers. More competitive rents and significant new mixed-use schemes, both planned and under construction, including the Clerys’ re-development, are making Dublin 1 an increasingly attractive location for major corporate occupiers where new office space alongside retail and leisure offerings will appeal.