Accounting for 40% of Ireland’s GDP, Dublin is the engine driving Ireland towards becoming the fastest growing economy in Europe for a third year in a row in 2016. The city’s success can be attributed to the three T’s; namely Tech, Talent and Tax. The tech industry now accounts for the largest share of office take-up, with companies such as Google, Facebook and Twitter locating their European Headquarters in Dublin, earning the city the title of ‘Silicon Docks’. While the tech industry is the chief engine of growth, Dublin has emerged as an international hub for a broad range of sectors including aircraft leasing, financial services and media. With 40% of the population under 29 years old, Dublin also offers access to a young, vibrant and well-educated pool of talent. Lastly, the corporation of tax of 12.5% is low by international standards and acts as a strong pull factor for publically listed companies who have a fiduciary responsibility to minimise taxes.
Q1 2016 office take-up was up 62% on the same period last year, indicating that 2016 levels could even surpass those achieved 2015, which was the second strongest year on record. The strong occupier demand combined with low availability of space has seen prime rents rise from a trough of U.S.$36.25 per sq ft in 2011 to currently stand at U.S.$61 per sq ft; although they are still below their pre-crisis high. The pace of rental inflation is finally showing signs of easing as the first delivery of new office development in over half a decade begins to come on stream.
The robust recovery in occupier market fundamentals has drawn unprecedented levels of international investment flows to Dublin. United States private equity funds were the first to spot the opportunity that the Dublin market represented, with Blackstone, Lone Star and Kennedy Wilson each deploying significant levels of capital. With the market now considerably de-risked, pension funds, primarily from Europe and Canada, and sovereign wealth funds from Asia, are accounting for the next wave of capital in the expectation that Dublin will continue to deliver superior risk-adjusted returns over the coming years.
DUBLIN AND MADRID PRIME OFFICE YIELDS VS BOND YIELDS