Strong rebound in EastPoint with vacancy now just 3%

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EastPoint is located on 40 acres of land reclaimed by Dublin Port during the 1960’s and ‘70’s. Developed on a building by building basis, it has grown into a landscaped office park consisting of 37 buildings housing 7,000 workers. Originally earmarked as a site for a city airport, its heritage as an office campus can be traced to when Earlsfort Centre Developments purchased the site in 1990, with the first building delivered in 1996.

Much of the initial success of the park lay in its designation by the government as an Enterprise Zone within Dublin. This designation offered economic incentives in the form of tax breaks and was successful in attracting investors, mostly comprised of Irish consortiums, to invest in EastPoint.

Crucially, various incentives also applied to qualifying tenants approved by the Irish Development Authority (IDA), tenants which were generally sourced from the technology sector. As a result, EastPoint became home to some of the most famous pioneers of the early internet boom with companies such as AOL among the first to take space in the park. This tech heritage has stood the office park in good stead, as it has attracted contemporary household names such as Google and Oracle, who occupy four and five buildings respectively. It was a stroke of luck that EastPoint had tied its fortunes to the tech sector, as the sector has grown fast to become the dominant sector in Dublin’s office market. In order to insure that the area remains attractive to this lucrative sector, investment in infrastructure in areas such as hyper-capacity fibre optic cabling have been made.

The campus style layout is one of the main strengths of EastPoint as this enables occupiers to capture knowledge spillovers that derive from clustering. While some suburban locations appear disparate and disjointed, EastPoint is a cohesive community of like-minded tenants in close proximity to the city centre. However, despite being just approximately one kilometre from the River Liffey, the park has suffered from a perception as being a fringe or an out of town location.

Attitudes are likely to change, however, as the continued development of the north docklands takes place. This will draw the gravity of the city centre closer, while connectivity with the south of the city will be improved by the additional bridges that are due to be constructed between the north and south docks. Furthermore, in the longer-term, the area between the Point Village and EastPoint is likely to be developed for commercial space which will eventually truly connect EastPoint with the city centre.

OCCUPIER MARKET

Ireland’s economic crisis hit EastPoint severely as many of the original tenants dating from circa 1996 had fifteen year break options which they exercised around 2011, having undergone significant rental mark-ups at the height of the boom in circa 2006. As a result, vacancy hit approximately 30% in the following years, which resulted in many of the loans associated with properties in EastPoint subsequently turning up in loan book sales.

Keen to retain tenants, a number of deals were done by receivers at very low rents which persist to today. For example, Block R is currently let to Google at a significantly under rented rate of just €5.75 psf having struck a deal to undertake significant capital expenditure to refurbish the building in 2013 in exchange for a reduced rent until an open market rent review in 2018.

However, as the Dublin office market has rebounded in recent years, EastPoint has benefited as the supply of available space in the city centre has diminished. Strong take-up of 81,705 sq ft in the first half of 2016 has helped to push down the vacancy to just 3%, while rents have risen from approximately €15.00 psf to €22.00 psf in the last twelve months. Notwithstanding, it should be noted that rents are greatly variable between the buildings, reflecting the degree of capital expenditure that has been spent on refurbishments. Knight Frank are currently marketing, on behalf of IPUT, newly refurbished grade A space for €25.00 psf which would set a new rental benchmark for the area, up from the previous peak of €24.00 psf. Given that €29.50 psf was recently achieved for the remaining space at nearby Point Village, Dublin 1, the spread is still attractive given the close proximity of the two areas.

INVESTMENT MARKET

Today, the original developer retains varying degrees of interest in 40% of the buildings while owner occupiers account for 10%, IPUT own two buildings and various Irish and overseas syndicates account for the balance. Investment yields in EastPoint are now in the order of 7% with investment capital values in excess of €300 psf. This marks a considerable rebound in values of the 2012-2013 period, when vacant possession capital values were in the range of €65-€80 psf. With rents having increased rapidly over the past year, much of the park is now significantly under rented on short-term tenancies which offers asset management opportunities to drive value through rental mark-ups and lease renegotiations.

Examples of this can be found in the recent sales of Block G and Block P which, although showing net initial yields of approximately 3%, both have an estimated equivalent yield of circa 7-8%. Investments currently on the market include Blocks J & K, which was let to Arvato for a 15-year term in Q1 and is guiding €21 million, representing a yield of 6.4%.

The blocks offer the potential for adding floorspace primarily through the construction of an additional floor. In this manner, the development of further space in EastPoint is likely to take the form of adding additional height to existing buildings given that the economics that would support the construction of new buildings in fringe locations is some considerable time off yet.

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