The cranes continue to spring up but is the Dublin office market a "no-brainer" investment at the moment? The onward march of the co-working players - domestic offerings from the likes of Iconic Offices, Glandore and Investi and the large international players WeWork and Regus - seems to suggest that sharing is the new workplace. Who needs an office? With D2 and D4 offices now commanding rents greater than the 06/07 boom is it time to pause and think? Only last week we saw the Collison brothers talking to our Government about housing concerns. Facebook are building their own apartments in the US. As Brian Moran from Hines has pointed out - for every 100 sq ft office space you need for an employee, they will need 300+ sq ft to live in. We might have lots of offices but nowhere to go to when you finish work!
As the linked commentary below points out - getting funding to build offices can be very challenging. Debt and equity are very expensive in Dublin at the moment. Typical funding streams are also being linked to 10-15 yr term certain leases. We are seeing more and more of those crossing the desks. Less breaks and less flexibility for occupiers (but no upwards only reviews in 5 years). If Facebook take on the AIB campus, they'll be decanting from a lot of great space in the city. More co-working to come maybe?
Seeing the deals coming through our acquisitions team, the trends are clear: Massive reduction in concessions, longer terms, break options costing money, funders squeezing tenants (fit out collaterals, etc). And then squaring up against these trends you have the co-working spaces - no term, no commitment, just plug and play. The Dublin office scene is a high pressure game at the moment.
Plenty to think about there. The economic story is good and the agents are still running their launch parties. Maybe we just need to pause and reflect on what the real demand for 15-20 yr office leases in the city will be in 2-3 years time. Those are expensive bets to be placing.
Savills Ireland Head of Offices Andrew Cunningham said. “Tighter purse strings and greater regulations in the banks and finance houses mean conventional senior debt from domestic banks for speculative development remains scarce, an undoubted cause of the slippage in delivery of new stock,” he said. “Development is being undertaken by those who are well funded, and while private equity has the largest share of the overall pipeline, projects that are actually under way are more biased towards publicly quote prop cos, REITS and funds with large balance sheets.” Kennedy Wilson European Chief Operating Officer Peter Collins agrees. “It’s a nuanced issue. In general the Irish banks aren’t funding speculative offices, but the bigger developers — those with international links or the local REITS — can borrow on the strength of their balance sheet, or source funding internationally, ”
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