Area Focus: Dublin’s Docklands and the Office Market

The Docklands is witnessing heightened development activity with 1.4 million sq ft under construction as well as the potential for a further 2.1 million sq ft to be delivered from the area’s remaining brownfield sites.

Background

The modern form of Dublin’s Docklands can be traced to the 18th Century with the construction of the North Wall and Sir John Rogerson Quays. Their construction was undertaken in order to control and deepen the flow of the River Liffey and facilitate maritime trade upon which Dublin’s economy depended. Today, commerce in Dublin’s Docklands is focused on intangible rather than tangible commodities. The tech and financial innovation that takes place there – along with the legal and accounting firms that support them – are at the heart of not only the local but national economy. The area has become particularly associated with the tech industry which as earned it the moniker of ‘Silicon Docks’ in reference to the giants of Silicon Valley that have established their European Headquarters there. Google were the first major company to do so in 2003 – a year before the company’s IPO – while Facebook moved in 2008 – the same year in which the company took over from Myspace as the world’s most popular social networking site. While an attractive tax regime may have been a primary motivator behind their initial decision to locate there, they now have established deep roots within the Docklands with Google employing over 6,000 staff and Facebook on course to employ approximately 3,000 staff, making it by far its largest footprint outside of their Silicon Valley headquarters.

Leasing, Investment and Development activity

Since the market started to recover in 2012, the Docklands has accounted for approximately 3.0 million sq ft or 22% of the total market. The South Docklands accounted for 56% of the Dockland’s take-up followed by the IFSC and the North Docklands which comprised of 24% and 21% respectively, with the latter’s low share a reflection that it is still in the early stages of development.

The Docklands reputation as a prime occupier location within Dublin is evidenced by the fact that the highest share of take-up occurred in the Docklands as the economy exited the recession, accounting for 31% of the market in 2012.  Early deals of particular note included Facebook’s letting of 121,000 sq ft at Grand Canal Square for €35.00 psf in 2013, €5.00 ahead of the €30.00 psf achieved by Capita who took 43,000 sq ft at 2 Grand Canal Square during the trough of the market a year earlier. Since then, rents have appreciated strongly with €60.00 psf being achieved in Q3 2016 with Citadel’s taking of 18,250 sq ft at 1 Grand Canal Square. Take-up in the Docklands has been constrained by a lack of supply in recent times, dropping to a low of 13% market share in 2015, although activity is picking-up once again as new supply unlocks pent-up tenant demand.

The Docklands have the greatest investment liquidity in the Dublin market with no other area rivaling it for the quantum of large sales. Since 2013, there have been five office transactions in excess of €90 million, including the largest ever office deal in Dublin with the sale of One Spencer Dock to Middle Eastern fund AGC Equity Partners for €240.0 million in Q2 2016, representing a price per sq ft of €1,059. This compares to a price per sq ft of €770 achieved for 1 Grand Canal Square when it sold for €93.0 million in Q4 2013. The current marketing for sale of No.1 Dublin Landings by Oxley/Ballymore at a price of €150.0 million or €1,034 psf is believed to be attracting strong international investor interest. This appetite is not only a function of the quality of this state tenanted scheme but also a reflection of Dublin’s transition from recovery to core market status which has occurred over the past year.

Turning to new supply, there is 1.4 million sq ft under construction in the Docklands, with a further 2.1 million sq ft delivery potential from the area’s remaining brownfield sites. In addition to the aforementioned Dublin Landings scheme, significant developments include Ronan Group’s Spencer Place, Hibernia REIT’s SOBO District and Kennedy Wilson’s Capital Docks.

Outlook

While the North Docklands has historically lagged equivalent South Docklands properties in terms of rents and yields achieved, this gap is closing fast as the developments that are coming on stream on the North Docklands will be the best and the most modern in the city. Meanwhile, just as the South Docklands benefited from the planning experience of the IFSC, the North Docklands is benefiting from the planning experience of the South Docklands – for example, schemes in the North Docklands are being designed with greater permeability than their South Docklands counterparts. Crucially, the construction of the pedestrian bridge near New Wapping Street will facilitate ease of access to the amenities of the South Docklands to North Docklands occupiers.

It will be interesting to see how the evolution of the occupier make-up of the North Docklands unfolds, as the early occupiers – namely the Central Bank, the NTMA and PwC – are very much in line with the prevailing finance dominated tenant profile of the IFSC. However, this is more likely a reflection of the limited number of tenants that have located there so far with the area set to become heavily influenced by tech given the high share of Dublin take-up that the sector accounts for. Furthermore, we are likely to see a much altered tenant mix in the IFSC in the coming years as the leases of finance companies who benefited from incentives to locate there expire. The occupation of HubSpot at One and Two Dockland Central and the Food Safety Authority at The Exchange is a sign of things to come.

A mark of the current cycle is that debt and equity funders are more location sensitive than in times past, a reflection of the liquidity needs of international money in managing market cycle risk. Already known as a prime location, the building-out of the remaining schemes will see Dublin’s Docklands cement this reputation and further enhance the relative appeal of the area to core investors going forward.

 

Knight Frank Apartments of Note:

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