Prime office rents in Dublin may have reached levels seen during the boom, but tenants are, in many cases, paying peak prices to occupy older buildings and on less favourable terms. The combination of the two factors is making it more expensive than ever in relative terms to secure Grade A office space in the capital.
That's the upshot of an analysis of the Dublin office rental market by Savills Director of Research John McCartney.
Asked by the Irish Independent for his response to reports that prime office rents in the city had returned to peak levels of €60 per sq. ft, McCartney said while it was "surprisingly tricky" to quantify the rapid rental growth which had taken place, "on a proper like-for-like basis, it is arguable that Dublin office rents have already reached new record highs".
Noting how important it was to be clear on one's definition of rent, he added: "The most commonly quoted figure is the 'face' or headline rent. By definition this measure excludes incentives such as rent free periods which are part-and-parcel of most letting deals. These incentives reduce the net effective rent that tenants pay, averaged over the lease term."
In seeking to compare market rents over time, McCartney noted that these incentives had varied, making it far more difficult to say if prime office rents had matched or even surpassed their previous peak.
He said: "Average lease terms have fallen sharply in the last decade and upward and downward rent reviews replaced upward only reviews from 2010. As a result, landlords' rental incomes are now secured for a shorter period than in the past. This gives them less chance to recoup any up-front concessions over the course of a lease, and so rent-free periods have come down drastically."
While McCartney said current headline rents had become a truer measure of the rents that tenants were actually paying, they were not directly comparable to the 2008 headline figures, which he remarked had been "artificially inflated" by long rent-free periods.
Further complicating the question of comparing rents to their peak levels is the general quality of the buildings being let.
On this, McCartney said: "Rental indices generally pick up the highest rents being paid in the market during a particular period. De facto, therefore, they relate to Grade A buildings. But the definition of a Grade A building is relative rather than absolute.
"Back in 2008 the highest rents were being achieved on brand new, state-of-the-art Grade A buildings. Today, because we have had a long period of virtually no office construction, these high rents are being achieved on Grade A buildings that are a decade old."
With tenants now arguably paying similar rents for older buildings and getting less benefit from rent-free periods, McCartney says prime office rents may already have reached the levels seen during the boom.
In their most recent reports on the Dublin prime office market, Jones Lang LaSalle (JLL) and CBRE estimate the price per sq. ft at between €55 and €60, and €57.50 respectively.