5
Occupier Trends Investment Trends Market Outlook knightfrank.com/research Research, Q4 2019 Dublin Office Market Overview
Occupier Trends Investment Trends Market Outlook
knig
htfra
nk.c
om/r
esea
rch
Research, Q4 2019
Dublin Office Market Overview
100,000
0
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2019
2018
2017
2016
2015
2014
2013
2012
O V E R V I E WAlthough down on 2018, 2019 saw take-up in the
Dublin office market reach its third highest level ever
TMTStateFinanceProfessional services
PharmaCoworkingOther
56%
10%3%
4%4%
7%
17%
South Suburbs 45%City Centre 30%West Surburbs 9%
WESTSUBURBS
Source: Data source
Label61%Label11%
Label29%
HeadlineSubtitle
7%
8%
9%
NORTHSURBURBS
WESTSUBURBS
FRINGE
Fig 2. Take-up by sector
Source: Knight Frank Research
TMTProf ServicesPharmaFinance
Medical StateCoworkingOther
34%9%
9%
10%
6%
20% 5%8%
South Suburbs 45%City Centre 30%West Surburbs 9%Fringe 8%North Surburbs 7%
WESTSUBURBS
FRINGE
NORTHSURBURBS8%
9%
7%CITY
CENTRE30%
SOUTH SUBURBS45%
South Suburbs 45%City Centre 30%West Surburbs 9%Fringe 8%North Surburbs 7%
Source: Data source
Label61%Label11%
Label29%
HeadlineSubtitle
7%
8%
9%
NORTHSURBURBS
WESTSUBURBS
FRINGE
3%4%
NORTH SUBURBS
11%FRINGE
WEST SUBURBS
CITYCENTRE
68%
SOUTHSUBURBS
15%
Fig 4. Take-up by location
Source: Knight Frank Research
20
192
018
20
172
016
20
152
014
20
132
012
20
112
010
200
920
08
200
720
06
200
5
€0
€10
€20
€30
€40
€50
€60
€70
€80
Fig 5. Prime office rents € per sq ft per annum
Source: Knight Frank Research
Summary
1. Ireland was the fastest growing economy in Europe for a sixth consecutive year in 2019
2. Take-up reached 3.3 million sq ft in 2019 – the third highest level ever
3. Prime Grade-A rents remained unchanged in 2019 at €62.50 psf
4. 1.5 million sq ft of office space was completed in 2019 with 2.9 million sq ft projected for 2020
5. €3.0 billion worth of office assets were sold in Dublin in 2019, setting a new record for investor activity
Source: Knight Frank Research
P R O P E R T Y T E N A N T S E C T O R S I Z E ( S Q F T )
Two-Four Wilton Park, Dublin 2 LinkedIn TMT 434,075
Spencer Place, Dublin 1 Salesforce TMT 430,000
No.4 & No.5 Dublin Landings, Dublin 1 Central Bank of Ireland State 201,000
The Distillers Building, Dublin 7 OPW State 182,000
Nova Atria South, Dublin 18 Facebook TMT 174,000
T O P 5 O F F I C E L E A S I N G T R A N S A C T I O N S
ECONOMYDespite significant headwinds –
including heightened Brexit uncertainty
– economic growth expanded by 5.5%
in 2019 according to the CSO, making
Ireland the fastest growing economy
in Europe for a sixth consecutive year.
Employment in Ireland grew by 3.5%
in 2019 as 79,900 new jobs were created
according to the CSO – the highest level
this cycle, but well below the highest
on record of 107,200 jobs which were
created way back in 1997. Employment
grew across 13 of the 14 economic
sectors – ‘Wholesale and Retail trade’
being the only exception – with growth
highest in the ‘Information and
Communication’ sector which expanded
by 10.7% reflecting the strength of the
tech sector. Jobs growth in Dublin stood
at 23,700 giving it a share of 30%, the
lowest this cycle and below the five-year
average of 41%. This may reflect capacity
Source: Knight Frank Research
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
Q2
19
-Q3
19
Q4
18
-Q1
19
Q2
18
-Q3
18
Q4
17-
Q1
18
Q2
17-
Q3
17
Q4
16
-Q1
17
Q2
16
-Q3
16
Q4
15
-Q1
16
Q2
15
-Q3
15
Q4
14
-Q1
15
Q2
14
-Q3
14
Q4
13
-Q1
14
Q2
13
-Q3
13
Q4
12-
Q1
13
Q2
12-
Q3
12
Q4
11-
Q1
12
Q2
11-
Q3
11
Q4
10
-Q1
11
Q2
10-Q
3 1
0
20
19
20
18
20
17
20
16
20
15
20
14
20
13
20
12
20
11
20
10
200
9
200
8
200
7
200
6
200
5
OCCUPIER MARKET Occupier activity remained strong in
2019 with 3.3 million sq ft transacting –
the third highest year on record. Deals
in excess of 100,000 sq ft – of which
seven transacted in 2019 – were behind
the high level of take-up, accounting for
52% of the total space let. This drove the
average deal size to 17,558 sq ft in 2019,
representing a continued move away
from the 10,000-11,000 sq ft average
deal size which had previously been the
norm for the market.
The growth in this deal-size category
is due to the mega deals being signed
by tech firms in Dublin, a trend which
continued in 2019 with TMT accounting
for 56% of take-up. The largest deal
of the year was LinkedIn’s pre-letting
of 434,000 sq ft at Wilton Park. Upon
completion, LinkedIn will occupy
a total of 712,000 sq ft in what will
become a City Centre campus for the
company. The second largest deal was
Salesforce’s pre-letting of 430,000 sq ft
at RGRE’s Spencer Place which will
see the company treble its existing
footprint from the 150,000 sq ft it
currently occupies in Sandyford.
These deals represent two of the three
largest deals that have ever transacted
in the Dublin office market, only
constraints in the office and housing
markets in the capital. Looking ahead to
2020, the outlook remains strong with
the Central Bank of Ireland forecasting
GDP growth of 4.8% which will
underwrite further job creation, with
42,000 new roles expected. We have
seen estimates consistently out-perform
forecasts over the last number of years
and it remains to be seen whether this
trend will continue.
In terms of investor activity, subdued
inflation across the EU has pushed the
ECB towards a more accommodative
monetary policy, pledging to hold
interest rates at their present levels
and reactivating their asset purchase
programme at €20 billion a month.
While a number of risks remain to
both the domestic and global economy,
this accommodative monetary
policy will act as a support for Dublin
office investment.
Source: CSO
Fig 1. Dublin employment
behind Facebook’s taking of 870,000
sq ft at Bankcentre in Ballsbridge in
Q4 2018.
Other important tech deals included
Facebook’s letting of 174,000 sq ft
at Nova Atria South in Sandyford,
Amazon’s taking of 170,000 sq ft at
Block 2 Charlemont Square, which
is currently under construction,
Intercom’s pre-letting of 113,000
sq ft at Cadenza, Earlsfort Terrace
and DocuSign’s taking of 99,000 sq ft
at 5 Hanover Quay.
Fig 3. Office take-up Sq ft
D U B L I N O F F I C E M A R K E T O V E R V I E W Q 4 2 0 1 9 D U B L I N O F F I C E M A R K E T O V E R V I E W Q 4 2 0 1 9
2 3
The 2020 General Election saw Sinn Féin emerge as a serious challenger to the traditional duopoly of Fine Gael and Fianna Fáil. Having won 37 seats in the general election – meaning that it will be the second largest party in the 33rd Dail – Sinn Féin’s ascent represents a threat to the business friendly status quo. Sinn Féin’s manifesto contains a number of commitments that could make Ireland a less attractive place to do business – potentially undermining office occupier demand – such as increasing employee
income tax and employers' PRSI on salaries in excess of €100,000 as well as tapering out tax credits for those earning between €100,000-€140,000. The party also wish to increase the stamp duty on commercial property to 12.5% which would hurt investment activity. While Sinn Féin are unlikely to be in power this time around, the onus is on the big two parties to seize the opportunity to address issues such as housing or risk Sinn Féin gaining a potentially dominant position in the next election.
Knight Frank view on risk
AMIE
NS S
TREE
T
PORTLAND ROW
O’CONNELL STREET
BATH AVENUE
CITY QUAY
SHERIFF STREET UPPER
EAST
WAL
L ROA
D
HADDINGTON RD
FITZWILLIA
M ST U
PPER
KILD
ARE S
T
DAW
SON
STRE
ET
MOUNT STREET LOWER
CUFFE ST
LEESON ST LOWER
GRAND CANAL ST LOWER
HATCH STREET
CAMDEN
STREETLOW
ER
RANELAGH
ROAD
EDEN QUAY
GEOR GES QUAY
NORTHUMBERLAND
ROAD
SHELBOURN EROADCHARLEMONT ST
BAGGOT ST LOWER
PEARSE STREET
VICTORIA QUAY
CHESTERFIELD AVE
USHER’S QUAY
ARRAN QUAY
SOUTHCIRCULAR
R OAD
DOLPHIN ROAD
SOUTH CIRCULAR ROAD
OLD KILMAINHAM ROADJAMES STREET
MARROWBONE LANE
CORK STREET
DONORE AVENUE
KEVIN STREET UPPER
EARL
SFOR
TTE
RRAC
E
CLAN
BRASSILST
REET
PATR
ICK
STRE
ET
BRIDGE
STREETTHOMAS STREET
WOOD QUAY
CHAPELIZOD BYPASS
BLAC
KHAL
L PL
QUEE
N ST
REET
MANOR STREET
SUMMERHILL
CONS
TITU
TION
HILL
SERPENTI
NE
AVENUE
PARNELL STREET
GARDINER STREET LOWER
LEESON ST UPPER
NORTH CIRCULAR ROAD
CONYNGHAM ROAD
Block 2, Charlemont SquareDate: Q4 2019
Rent: €53.50 psf
Take-up: 170,125 sq ft
Tenant: Amazon
Sector: TMT
CadenzaDate: Q4 2019
Rent: €60.00 psf
Take-up: 112,760 sq ft
Tenant: Intercom
Sector: TMT
Two-Four Wilton ParkDate: Q4 2019
Rent: N/A
Take-up: 434,075 sq ft
Tenant: LinkedIn
Sector: TMT
No.4 & No.5 Dublin LandingsDate: Q1 2019
Purchase: €204.0 million
Take-up: 201,000 sq ft
Tenant: Central Bank of Ireland
Sector: State
No.4 & No.5 Dublin LandingsDate: Q4 2019
Type: Development
Developer: Oxley & Ballymore
Space Delivered: 201,000 sq ft
Spencer PlaceDate: Q1 2019
Rent: N/A
Take-up: 430,000 sq ft
Tenant: Salesforce
Sector: TMT
70 St Stephen's Green Date: Q4 2019
Rent: €61.50 psf
Take-up: 62,000 sq ft
Tenant: Horizon Pharma
Sector: Pharma
Bishop's Square Date: Q1 2019
Rent: €49.50 psf
Take-up: 46,895 sq ft
Tenant: OPW
Sector: State
One BallsbridgeDate: Q4 2019
Rent: €53.75 psf
Take-up: 41,473 sq ft
Tenant: Mongo DB
Sector: TMT
The Cedar PortfolioDate: Q4 2019
Yield: N/A
Price: €530,000,000
Purchaser: Blackstone
Charlemont ExchangeDate: Q1 2019
Yield: 4.5%
Price: €144,000,000
Purchaser: Vestas Management
77 Sir John Rogerson's QuayDate: Q1 2019
Yield: 4.6%
Price: €35,500,000
Purchaser: Patrizia
The One BuildingDate: Q1 2019
Yield: N/A
Price: €49,500,000
Purchaser: BNP REIM
Shelbourne HouseDate: Q4 2019
Yield: 3.6%
Price: €35,000,000
Purchaser: Quanta Capital
51-54 Pearse St/Magennis PlaceDate: Q2 2019
Yield: 2.9%
Price: €27,200,000
Purchaser: N/A
Lennox BuildingDate: Q2 2019
Type: Redevelopment
Developer: Canal Basin Holdings
Space Delivered: 21,000 sq ft
The Lennox BuildingDate: Q2 2019
Yield: 4.8%
Price: €27,000,000
Purchaser: Swiss Life
Ballast HouseDate: Q2 2019
Yield: 5.6%
Price: €26,900,000
Purchaser: Union Investment
76 Sir John Rogerson's QuayDate: Q4 2019
Type: Development
Developer: TIO
Space Delivered: 95,308 sq ft
3 Dublin LandingsDate: Q4 2019
Type: Development
Developer: Oxley & Ballymore
Space Delivered: 113,559 sq ft
5 & 6 Earlsfort TerraceDate: Q1 2019
Type: Refurbishment
Developer: IPUT
Space Delivered: 80,778 sq ft
Scotch HouseDate: Q3 2019
Type: Redevelopment
Developer: MF Properties
Space Delivered: 43,000 sq ft
10 Pembroke PlaceDate: Q1 2019
Type: Redevelopment
Developer: Pembroke Place Developments
Space Delivered: 25,179 sq ft
Bishops Square ExtensionDate: Q1 2019
Type: Redevelopment
Developer: Hines
Space Delivered: 28,857 sq ft
5 Hanover QuayDate: Q1 2019
Rent: €51.50 psf
Take-up: 98,628 sq ft
Tenant: DocuSign
Sector: TMT
1 SJRQDate: Q1 2019
Type: Development
Developer: Hibernia REIT
Space Delivered: 112,000 sq ft
2 WMLDate: Q1 2019
Type: Redevelopment
Developer: Hibernia REIT
Space Delivered: 62,287 sq ft
The ReflectorDate: Q4 2019
Yield: 4.2%
Price: €155,000,000
Purchaser: Deka ImmobilienThe Distillers BuildingDate: Q1 2019
Rent: N/A
Take-up: 182,000 sq ft
Tenant: OPW
Sector: State5 Hanover QuayDate: Q3 2019
Yield: 4.1%
Price: €197,000,000
Purchaser: Union Investment
TRINITY COLLEGEDUBLIN
CONNOLLYSTATION
THECONVENTION
CENTRE
GRAFTONSTREET
ST STEPHEN’SGREEN
3ARENA
GRAND CANALENERGY THEATRE
AVIVA STADIUM
GOVERNMENTBUILDINGS
DORSET STREET UPPER
PHOENIXPARK
HEUSTONSTATION
SMITHFIELD
HENRYSTREET
DART RAIL LINE
KEY
DEVELOPMENTS
INVESTMENTS
LETTINGS
LUAS TRAM LINE
LUAS TRAM LINE
T O P L E T T I N G S , I N V E S T M E N T S A N D D E V E L O P M E N T S I N 2 0 1 9
D U B L I N O F F I C E M A R K E T O V E R V I E W Q 4 2 0 1 9 D U B L I N O F F I C E M A R K E T O V E R V I E W Q 4 2 0 1 9
4 5
The State also performed strongly
comprising 17% of activity, largely due
to the Central Bank’s taking of 201,000
sq ft at No.4 & No.5 Dublin Landings
– positioned behind its existing
headquarters which it completed in
2017 – and the OPW’s pre-letting of
182,000 sq ft at the Distillers Building.
The majority of activity occurred in the
City Centre which accounted for 68%
of the market followed by the South
Suburbs and the City Fringe with 15%
and 11% respectively. The vacancy rate
in Dublin stood at 7.0% at the end of
2019, falling to 5.3% in the City Centre
and as low as 1.2% in the prime core.
Prime rents finished the year at
€62.50, a level they have maintained
since 2017.
DEVELOPMENT MARKET1.5 million sq ft of office space was
delivered in 2019 – the lowest level
since 2016 when 1.3 million sq ft
was completed. 851,000 sq ft was
supplied in the City Centre where
notable completions included No.
3-5 Dublin Landings (314,559 sq ft)
which represented the conclusion
of the office element of Oxley and
Ballymore’s Dublin Landings scheme,
while Hibernia REIT delivered 1SJRQ
(112,000 sq ft) and 2WML (62,287
sq ft) which completed their Windmill
Quarter development.
In the Suburbs, Sandyford witnessed
heightened levels of activity with
488,000 sq ft being delivered including
Blackstone’s refurbishment of Nova
Atria South (174,000 sq ft) and Cyril
McGuire’s development of One South
County (141,000 sq ft).
Looking ahead, delivery in 2020 is
expected to increase to 2.9 million sq ft
of which 39% is already let, while in the
City Centre, 2.1 million sq ft will come
online of which 51% is pre-committed.
Major schemes due for delivery include
RGRE’s Spencer Place (430,000 sq ft),
Aldgate’s Termini (221,523 sq ft) and
Google’s Boland’s Quay (210,036 sq ft).
INVESTMENT2019 established a new record for
investment in Dublin’s office market
with €3.0 billion transacting – well
ahead of the previous peak of €2.1
billion which was achieved in 2014
and double the five-year average of
€1.5 billion. As illustrated in Fig 6, €2.1
billion – or more than two-thirds of
the full year volume – transacted in Q4
alone making it the highest quarter on
record by some distance.
The most significant transaction of
2019 was the sale of the Green REIT
portfolio – the value of which was
rooted in Dublin offices, with George’s
Quay and Central Park being the largest
assets in the portfolio – to Henderson
0%
1%
2%
3%
4%
5%
6%
7%
8%
20
192
018
20
172
016
20
152
014
20
132
012
20
112
010
200
920
08
200
720
06
200
5
Fig 7. Dublin prime office yields
Source: Knight Frank Research
Q3
2019
Q4
20
19
Q2
2019
Q1
20
19Q
4 2
018
Q3
2018
Q2
2018
Q1
20
18Q
4 2
017
Q3
20
17Q
2 20
17Q
1 2
017
Q4
20
16Q
3 20
16Q
2 20
16Q
1 2
016
Q4
20
15Q
3 20
15Q
2 20
15
Q1
20
15Q
4 2
014
Q3
2014
Q2
2014
Q1
20
14Q
4 2
013
Q3
2013
Q1
20
13Q
2 20
13
€0
€500m
€1,000m
€1,500m
€2,000m
€2,500m
Fig 6. Dublin office investment volumes
Source: Knight Frank Research
P R O P E R T Y S E L L E R B U Y E R A P P R O X . P R I C E
Green REIT Portfolio Green REIT Henderson Park €1.5bn
Cedar Portfolio Starwood Blackstone €530.0m
5 Hanover Quay, Dublin 2 TIO Union Investment €197.0m
Nova Atria, Dublin 18 Blackstone Mapletree €165.0m
The Reflector, Dublin 2 Park Developments Deka Immobilien €155.0m
BUYERS
UKEurope
USAsia
Ireland
18%
19%
8%
11%
43%
VENDORS
31%
3%1%
65%
Fig 8. Buyer and vendor source
Source: Knight Frank Research
T O P 5 O F F I C E I N V E S T M E N T T R A N S A C T I O N S
Source: Knight Frank Research
Park for €1.5 billion. As a result of this
purchase, UK buyers accounted for
an unprecedented 43% of the market,
ahead of European and United States
purchasers who had respective market
shares of 19% and 18%. Henderson Park
have already started the disposal of
some of the prime core assets within
the portfolio with the sale of the Capital
Collection – namely One Molesworth
Street, 2 Burlington Road, 5 Harcourt
Road, 30 to 33 Molesworth Street and
Fitzwilliam Hall – with a guide price
of €400.0 million for the entire. With
these buildings representing some of
the finest office assets in Dublin, the
pricing achieved in this sale is likely to
set the tone for the rest of the year.
The second largest deal was Blackstone’s
acquisition of Starwood’s Cedar
Portfolio for €530.0 million which was
comprised of six Dublin City Centre
office assets, namely The Watermarque
Building, 29-31 Adelaide Road, Marsh
House, Iveagh Court, 75 St Stephen’s
Green and Parkgate Street 1 and 2.
Elsewhere, Blackstone have disposed of
Nova Atria in Sandyford to Singapore
investors Mapletree for €165.0 million,
representing a significant premium on
the €100.0 million that Blackstone paid
for the asset in 2014. The remaining
transactions that made up the top five
deals were Union Investment’s purchase
of 5 Hanover Quay from TIO for
€197.0 million and Deka Immobilien’s
acquisition of The Reflector from Park
Developments for €155.0 million.
Prime office yields finished 2019 at 4.0%,
a level they have been at since 2017. Given
that Irish government ten-year yields
bonds tightened from 0.89% to 0.14%
over the course of 2019 (CSO), while office
yields remained stable, the risk premia
of Dublin office investments widened by
three-quarters of a per cent in 2019. With
real estate markets operating at a lag to
bond markets, many had expected this to
translate into more aggressive pricing in
2020, but the crystallisation of risks such
as the uncertain election results means
that we are unlikely to see this scenario
come to fruition in 2020.
Delivery in 2020 is expected to increase by
88% to 2.9 million sq ft, up from the 1.5 million sq ft
completed in 2019
ISJRQ
D U B L I N O F F I C E M A R K E T O V E R V I E W Q 4 2 0 1 9 D U B L I N O F F I C E M A R K E T O V E R V I E W Q 4 2 0 1 9
6 7
The Wealth Report - 2020
London Offices Spotlight - Q4 2019
The
Wea
lth R
epor
t 202
0
© 2019 HT Meagher O’Reilly trading as Knight FrankImportant Notice: This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by HT Meagher O’Reilly trading as Knight Frank for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of HT Meagher O’Reilly trading as Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of HT Meagher O’Reilly trading as Knight Frank to the form and content within which it appears. HT Meagher O’Reilly trading as Knight Frank, Registered in Ireland No. 385044, PSR Reg. No. 001266. HT Meagher O’Reilly New Homes Limited trading as Knight Frank, Registered in Ireland No. 428289, PSR Reg. No. 001880. Registered Office – 20–21 Upper Pembroke Street, Dublin 2.
Knight Frank Research Reports are available atknightfrank.com/research
Offices
Declan O’Reilly, Director
Paul Hanly, Director
Jim O’Reilly, Director
Gavin Maguire, Associate Director
Mark Headon, Associate Director
Research
John Ring, Head of Research
Robert O’Connor, Research Analyst
Capital Markets
Adrian Trueick, Director
Peter Flanagan, Director
Ross Fogarty, Director
T H E G L O B A L P E R S P E C T I V E O N P R I M E P R O P E R T Y & I N V E S T M E N T
2 0 2 0 — 1 4 T H E D I T I O NK N I G H T F R A N K .C O M / W E A LT H R E P O R T
T
H
E
W
E
A
L
T
H
R
E
P
O
R
T
2
0
2
0
W E A L T H R E P O R TT H E
DUBLIN PRS TENANT SURVEY
RESEARCH
Market Dynamics | Tenant Survey Results | Analysis
knightfra
nk.com
/res
earch
REPORT
Q4 2019
Flurry of post-election investment deals
No respite in supply shortage
New record rents forecast Please get in touch with us
Dublin PRS Tenant Survey - Report
Active Capital 2019
