Paul McNeive: Nervous landlords are more than happy to let office rent reviews slide

But setting the new rent has a significant impact on the tenant, and on the capital value of the landlord’s investment.

Landlords and tenants can be lucky, or unlucky, depending on when the review date falls.

The new rent will be decided by comparison with similar lettings in the open market, so a review falling in a downturn could see your rent reduce, or vice versa.

The rent review system has changed dramatically in recent times, most importantly with the abolition of “upward only” rent reviews. That heralded a new regime of “cap and collar” clauses in new leases, where landlords and tenants agreed the maximum amounts by which the rent could change.

Those arrangements are becoming scarcer and both “upward only reviews” and “cap and collar” clauses are now seen in less than 10pc of leases.

Another common clause, linking rents to inflation, is also disappearing and the market has evolved to where landlords and tenants are more prepared to “take their chances” at review. In a sluggish market, rent reviews tend not to happen, and that is the case now in Ireland’s office market.

Recently, landlords are generally not triggering the rent review, figuring that the status quo is better than risking a possible 5-10pc reduction in rent, and incurring costs of €10,000 to €20,000 if the case goes to arbitration.

A big gap is developing between the values of prime offices versus secondary or suburban offices.

In the prime sector, some landlords have achieved increases of 5-10pc. In other cases, landlords are granting three month rent-free periods to the tenant, to avoid a rent review.

In retailing, rents at shopping centres have been trending upwards over the last five years, but the market is nuanced.

For example, Grafton Street, Dublin 2, has seen a remarkable recovery in occupancy levels, but rents have actually fallen over the last five years.

Rents peaked with the letting to Lego in 2022, but three prime Grafton Street properties reviewed since then, saw their rents reduce by 15-20pc. A trend is that tenants have become very reluctant to take on properties in slightly off-pitch locations, or with an inefficient floor layout or in poor condition.

Investors in logistics properties are celebrating as rent reviews now are producing increases of up to 60pc, and even more, over the last five years.

This is driven by rapid increases in open market deals, for example, the recent letting of a 10,000 sq ft warehouse in Santry, Dublin 9, at €15 per sq ft, which would have made maybe €8 per sq ft three years ago.

A couple of quirks in the market are beginning to surface, and one of those is a cohort of deals agreed between landlords and tenants during the pandemic, where rents were reduced or rent-free periods granted, to avoid or defer rent reviews.

This is compounded by a weakness in the system whereby, unless “time is of the essence” is incorporated in the lease (which is rare), both landlords and tenants can trigger historic reviews.

Rent review decisions influence market values generally and the skills of the specialist rent review surveyors in arguing technical issues under leases and negotiating reviews, is underestimated.