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Davy Stockbrokers dismisses fears over Dublin rent

By Peter Flanagan

Concerns that the Dublin office market may see a glut of supply in three years’ time that could send rents plummeting have been dismissed by Davy Stockbrokers, in a move that will give a big boost to the market.

In a note to clients, Davy said that planning applications for about 6.6 million sq ft are currently lodged.

That is the equivalent to nearly a fifth of the current supply in Dublin.

Last month, Green Reit claimed that if all that supply came on to the market in 2017 or 2018, it could drive down rents very quickly, and potentially leave property investors nursing heavy losses.

Davy, however, believes that scenario is now unlikely.

The firm says that according to a survey it carried out, there is a “low risk of oversupply by end-2018”, even though the vacancy rate in Dublin is now below 10% for the first time in 15 years.

In the top parts of the city — locations like Dublin 2 and Dublin 4 — the shortage is even more acute, with vacancy levels now seen as being effectively zero in large parts of the capital.

“This office development cycle is different,” said analysts Flor O’Donoghue and Ray Crowley.

“It is characterised by a transition from retail to a more institutionalised capital market. In a Davy Research survey conducted over the past week, we found that public Reits and PLCs, pension funds and private equity are dominant.

“Although limited in numbers, these are among the few that can fund development today.

“Project capital stacks are skewed towards equity, with debt viable only to those with robust balance sheets or with pre-lets in place, of which there are precious few,” they said.

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