Cork’s office market set to reach new heights as demand is soaring
Now that we are six years into this property cycle, it’s interesting to look at the statistics and see what has happened in the Cork office market over those years, and at how it has evolved. Namely, what occupier sectors and regions are most active, and how vacancy and rental rates have changed.
For analysis purposes, Lisney divides Cork’s urban area into five regions — the city centre and the north, south, east and west suburbs. Combined, these areas have an office building stock of approximately 510,000 sqm.
Over 70% of this is located in the city centre and the south suburbs. Stock levels haven’t changed too much in recent years with only about 44,000 sqm of new buildings completed since 2012, mainly at City Gate Park in Mahon, and at One Albert Quay and The Capitol in the city centre.
Currently, there are five buildings under construction and these will add about 42,000 sqm to stock when they are finished. In addition, there are 10 schemes (half in the city and half in the suburbs) with planning permission, and which have the potential to add 157,000 sqm if all are built.
At the end of March, there was just over 71,000 sqm of space available. Practically all of this was previously occupied accommodation, and some of which could be considered sub-standard and unlikely to be occupied again in the future.
The resultant headline vacancy rate is 14%, but with significant differences between the regions. What is very interesting here is that Cork’s overall vacancy rate has fallen by 10 percentage points since its highest level at the start of 2012.
In real terms, this means that over 46,000 sqm more space is now occupied. Despite the construction pipeline, the vacancy rate is likely to continue to fall in the short-term due to the active requirements that are currently in the market and the fact that there are significant pre-lettings in the new office developments at 85 South Mall and Navigation Square.
Demand for office space has been strong in recent years. The amount of annual activity averaged almost 18,000 sqm between 2012 and 2017. Last year was another good year with over 17,200 sqm taken up.
The opening months of 2018 have seen a steady demand and while activity reached just 1,500 sqm in Q1, this doesn’t accurately reflect the demand for space that is present.
Reviewing the figures over the years, it can be seen that there is always one or two quieter quarters a year, but activity usually rebounds in the following months.
In terms of location, as to be expected, the majority of activity generally occurs in the city centre. The six-year average is 36%, followed by 31% in the south suburbs and 23% in the east suburbs.
With occupier profile, it is very interesting how dominant international tech firms are. This is a similar trend to the Dublin office market. In Cork, the tech sector has, on average, accounted for 37% of all activity in the last four years. In 2017, it was even higher, at 51%, due to the large acquisitions by Oculus VR (Facebook), Poppulo (formerly Newsweaver) and Alien Vault. The professional services sector averages 17% and pharma at 13%.
Cork is becoming a more international market. 50.4% of all space was taken by overseas companies in 2017, clearly demonstrating international firms’ growing demand for the city.
This reinforces a survey published late last year by Cork City Council, Cork Chamber and the IDA that found international tech workers (from 27 countries) are moving to Cork for a better quality of life, career opportunities, shorter commutes and lower living costs. If staffs want to be in Cork, we will see more tech companies following suit, which bodes well for ongoing office demand.
But, it is not just overseas occupiers seeking space, demand remains strong from domestic companies, particularly in the city centre where new office construction is focussed.
Rental levels are also a key factor in attracting occupiers, both Irish and international.
The top headline rent in Cork city centre is currently about €323 psm (€30 psf). In terms of attracting FDI, this is a very competitive rate when compared to Dublin where the prime headline rent is €667 psm (€62 psf), more than twice the level. Despite this, rental values in Cork city centre are now 70% higher than at the start of 2013, the lowest point in the cycle, while the top suburban rate has risen by 79%.
I believe the outlook for the Cork office market is positive. The relative affordability compared to Dublin, combined with the top quality accommodation in the pipeline, will mean that occupiers will continue to seek space. Project Ireland 2040’s targeted population increase of up to 125,000, along with the infrastructural improvements and other developments, will all assist with this.
