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Published in Commercial Property on 28/04/2018

Cork City Docklands Driving Growth

CNI Editor reports

Cork City and especially its docklands area is expected to be one of the major beneficiaries of the Government’s Project Ireland 2040 long-term national spatial strategy.

The plan foresees the population of the city trebling from its current level of about 120,000 people to between 320,000 and 360,000 by 2040 to get it to a scale that it can compete internationally for more major FDI projects.

While some of that population growth will be due to the expansion of the city council’s boundaries into surrounding towns and villages, it is also envisaged that as much as 40pc of new accommodation will take place in existing built-up areas.

That is taken to mean that developers will be encouraged to focus on brownfield opportunities in the harbour areas closest to the city centre.

Already some major projects are in the pipeline for this area. At Albert Quay in the city centre, the first phase of O’Callaghan Properties’ Navigation Square amounting to 148,500 sq ft is due to be completed in November. Clearstream, a division of Deutsche Börse Group, will take 70,000 sq ft of space and may take a further 20,000 sq ft as it increases its Cork workforce by 200 to more than 560. All told, Navigation Square will comprise 350,000 sq ft.

John Clery Developments (JCD) is expected to complete the 4,650 sq m ‘eighty5’ South Mall before the end of this year.

An artist’s impression of Navigation Square at Albert Quay33
An artist’s impression of Navigation Square at Albert Quay

To the north side of the city centre, Clarendon Properties, headed by Corkman Tony Leonard and Belfastman Paddy McKillen, has received the green light for their Horgan’s Quay joint venture with BAM, which will include a 136-bedroom hotel, 200 apartments and 400,000 sq ft of offices. Work is expected to get underway on the hotel during this summer.

Denis O’Donoghue of CBRE reports increased interest in Cork recently from outside investors and developers.

“This is reflected in the 40-plus enquiries that we have seen including developers from Dublin and the UK, for the former Ford factory site near Cork’s main GAA grounds. The 11.35 acre site has planning permission for 564 apartments, a 205-bedroom hotel and 31,777 sq m of offices.”

International investment interest has already been seen in two recent acquisitions by IS Real. It has added the Marks & Spencer store at Merchant’s Quay Shopping Centre to its portfolio for a sum reported to be under €30m. IS Real had already acquired The Capitol mixed-use development at Grand Parade.

Project 2040 has also signalled the planned expansion of a number of the Government’s agencies in the city in the coming years. In the short-term its property manager, the OPW, has been seeking about 20,000 sq ft in the city centre.

An artist’s impression of Horgan’s Quay on the northside of the city33
An artist’s impression of Horgan’s Quay on the northside of the city

Margaret Kelleher of Lisney estimates that private companies are currently looking for a further 30,000 sq ft.

To date there has been no ‘south shoring’, a term used to describe the decentralisation by major national companies in response to lower Cork rents. Instead, it has been mainly foreign employers who have driven demand , most notably in the fintech and pharma sectors, according to O’Donoghue.

Ms Kelleher expects vacancy rates to continue their downward progress despite increased supply. Already the overall office vacancy rate has fallen from 16.7pc two years ago to 14pc at the end of March.

While headline city centre rents for prime new offices were unchanged in Q1, that was after strong growth as they had risen from €250 per sq m at the end of 2015 to €323 per sq m (€30 per sq ft) at the end of 2017. That’s a 47pc rise over two years.

Similarly, prime suburban rents were while unchanged at €215 per sq m (€20 per sq ft) in Q1 2018 have increased from €160 per sq m two years ago.

Ms Kelleher believes that “upward pressure on rents, particularly in suburban business park locations, is likely, with limited stock and increasing demand for prime office units.”

Demand is also having a ripple effect on older offices as the strongest rental growth so far this year was in the Central Business District. Prime rents for old and refurbished offices in South Mall increased by 6.8pc in the quarter to €172 per sq m (€16 per sq ft). On nearby Lapps Quay, rents for prime offices in the 10 to 15-year age group also rose 10.2pc in Q1 to €237 per sq m (€22 per sq ft).

Denis O’Donoghue points out that despite the volume of office stock at various stages of the planning process, only 14pc, or 34,479 sq m of the total potential pipeline in Cork, was under construction in the first two months of the year.

“While the pipeline of new office schemes gives potential occupiers some comfort, the lack of standing stock at present is posing a huge challenge for companies whose space requirements are more immediate,” he adds.

This is particularly understandable in the city centre which accounted for 46pc of the total stock available at the end of Q1. While Cork’s overall office vacancy rate has declined from 16.7pc in Q1 2016 to 14pc at the end of March, the city centre has the highest vacancy rate at 19.6pc and the north suburbs has the lowest at 9.3pc.

Nevertheless, even with the increased supply coming onstream later this year, Kelleher remains confident that vacancy rates will continue to fall as new office developments currently under construction will be pre-let.

Almost a quarter of this new stock has already been pre-let/accounted for and Kelleher points to the 15,000 sq m extension to Apple’s facility at Hollyhill while Eli Lilly has pre-let the 6,870 sq m which O’Flynn Construction has been building at Eastgate Business Park.

Kelleher estimates that the planning pipeline includes a further 157,000 sq m across 10 locations.

In the south suburbs, examples include JCD’s 26,000 sq m at City Gate, Mahon. At Cork Airport Business Park two projects are planned, one of 12,000 sq m and another of 6,500 sq m.

To the west of the city, 24,500 sq m is planned for Westfield Office Quarter, Ballincollig, while a 6,400 sq m is planned for Eastgate Business Park.

REF: Irish Independent