Downturn provides real office opportunities
Date : 01 May 2009
The property downturn has created significant opportunities for tenants seeking office accommodation, particularly those who do not have the encumbrance of an existing lease commitment, or where a lease is about to expire.
These opportunities are available not only in commercial terms, but also in location and, more specifically, in the final building chosen. Within the space of 10 months, the Dublin office market has shifted from a landlords' market to a tenants' market. The change in commercial terms is seen not only in rental levels, but also in the lease structure with landlords in some cases providing additional incentives such as rent free periods, fit-out allowances and frequency of break clauses.
The amount of money the tenant has to pay for the product has declined and has been revised down in many cases so as to reflect real value for money intoday's market so as to attract an incoming tenant.
Tenants are now sophisticated; they understand the commercial terms that can be achieved, with commercial lease terms changing in line with new business requirements.
Continued negative press and sentiment has led to tenants being less secure about business prospects. Landlords are aware of this and are working with tenants to assist with flexibility, which is becoming key in decision making.
Tenants who are expanding into larger accommodation, or retracting to smaller premises, are doing so because of change - change to their costs, income and competitive advantage against others in the market.
Tenants can move to better buildings with better efficiencies in better locations and save on cost. Occupiers are taking advantage of the property downturn to relocate to modern third-generation buildings that can match their operational efficiencies at competitive rents.
A tenant's approach to seeking office space is two-tiered, including location and specific building within that location. There is a set group of Dublin city centre occupiers that will remain at prime Dublin 2 and Dublin 4 addresses. However, there is also a category of occupiers that now no longer need a Dublin 2 address and can move to prime suburban locations, with lower business costs.
Landlords and tenants are now working together with revenue asserting itself as the most important factor for both parties. Landlords were previously more concerned with investment cash flow and capital value, but they are now trying to generate revenue and occupiers to achieve competitive rental levels.
This change must be reflected in added-value in line with what the perceptions of this added-value are. Landlords must differentiate their product to signal better business sense, or it will cease to be bought.
Although the flexibility on offer has increased in recent times, it is essential for occupiers to take professional advice.
Many of the non-rental concessions now available will be either withdrawn or significantly curtailed once the market improves. With the current pull-back in development, coupled with the fact that developers are no longer willing to move on-site unless a part, or entire pre-let, is agreed, stock completion levels are seriously curtailed.
In this changed market, I believe that it is important for tenants who are looking for new accommodation to al low plenty of time and also to be aggressive, but yet realistic, in negotiations.
Aisling Tannam is a landlord and tenant representation surveyor, Knight Frank Dublin.