Ready Money: Over-Development in the Offices Sector

Abstract

The office development sector in Dublin has undergone five distinct cycles since I960.¹ During the early to middle years of the 1980s, office development was in a period of relative quiescence, Figure 6.1 showing that the scale of completions, which had reached a historic peak of 85,100 sq m in 1982, declined thereafter until 1986 when just 14,425 sq m were developed. The timing of the Urban Renewal Act (1986) and Finance Act (1987), responsible for the introduction of fiscal incentives for property-related development in certain designated areas in Dublin, was fortuitous (MacLaran, 1993; see also Chapter 2). They occurred just as the office-development sector was about to enter a boom following six years of depressed economic conditions. The dearth of completions had resulted in the vacancy rate within the modern (post-1960) stock of office space falling to just 5 per cent. Accelerating economic growth in 1988 created increasing demand for offices and rentals started to increase for the few available buildings and, within a year, the vacancy rate had fallen to just 3.6 per cent. Rents, which had been static at Ir£107 (®135) per sq m, surpassed Ir£160 (®203) per sq m for prime newly completed space, providing a sharp impetus to office-development activity. Development in the late 1980s was further fuelled by an influx of property-investment funds, amounting to Ir£115M (®146M) in 1989 alone, as investment managers sought to participate in the rising returns available. As prospective investors competed for the limited supply of newly completed properties, initial yields strengthened from 6.5 per cent to below 6 per cent during the year. Developers reacted swiftly to the changed circumstances in the accommodation and property-investment markets, construction starting at over half the sites where planning permissions had not expired.