In a world of conflicting data and ambiguous narratives, tenants and investors in the Dublin office market need to engage their critical faculties and read between the lines.
Commercial agents diverge widely on the scale of Dublin’s office overhang, with Q2 vacancy rate estimates ranging from 12.2 to 15.4 per cent.
In absolute terms, this represents a delta of about 150,000 sq m – enough to accommodate 15,000 workers before Covid, and potentially far more in today’s era of remote working.
Worse still, there is mixed messaging on the direction of travel. Some companies indicate that the vacancy rate is rising. But other agents insist it is falling, with one suggesting it plunged by 1.8 percentage points in Q2.
Taken at face value, this implies that vacant space contracted by about 85,000 sq m in a quarter when only 53,000 sq m of space was taken-up through leasing. This is not plausible in my opinion. Vacant space typically contracts by far less than the amount of take-up, largely because movers leave empty buildings behind them.
Of course, demolitions and new building deliveries can also influence vacancy. But there is conflicting information here, too, with Q2 estimates of completed space ranging from zero to more than 56,000 sq m
As vacancy is the strongest determinant of prime rental growth, one would logically expect these divergent views to be reflected in a wide range of rent forecasts. However, on this matter at least, there is consensus: Dublin’s office agents are “ad idem” on the positive outlook for rents.
If the data is unconvincing, so too are some common narratives in the commentary. Dublin’s office market is undoubtedly being bifurcated by a “flight-to-quality”, and one could argue that the development pipeline is tight. But both phenomena are being presented as positives whereas they actually reflect distress in the market.
[ Dublin’s empty offices: White elephants and grey spaces in the ‘shadow market’Opens in new window ]
Disregarding problems in the wider market, the flight-to-quality narrative focuses exclusively on the prime segment where growing rent premiums are interpreted as evidence of strong occupier demand for high-spec properties in the best pitches.
In fact, the gap between prime and secondary office rents ebbs and flows with the market cycle, and actually peaks when demand is at its weakest. This pattern, which is observed in office markets across the world, derives from simple economics. In a booming market, the best space runs out first, leaving unsatisfied demand with nowhere to go but to older buildings and secondary locations.
Rents for these inferior properties get bid-up, narrowing the gap between prime and secondary rents. In a slack market, occupiers also naturally gravitate towards the best offices. However, because the depth of demand is not sufficient to fill them, good quality space remains available.
In this case, demand is not diverted to the inferior stock, so secondary rents weaken relative to prime.
This latter scenario describes Dublin in 2026. Demand is clearly quite thin, even for the best properties. To see this, consider the example of 16 St Stephen’s Green.
This building ticks every box that is supposedly important. Its location on the north side of the green could not be more prime. The Luas Green Line tram service is a one-minute walk away and multiple bus routes are on the doorstep.
The building has excellent sustainability credentials and won two awards for its engineering and construction excellence. Yet, it took more than four years from its reported completion in 2022 for this property to be leased to flexible office provider Pembr.
Unfortunately, there are many examples of new builds with all the right credentials that have been slow to shift. Rental data tells a similar story. Even if we accept the narrative that benchmark rents are now tipping above €700 per sq m annually, this represents a real-terms discount of more than 20 per cent on where they were two decades ago, for much inferior buildings.
Having argued that there is strong demand for prime offices, estate agents usually turn to the tight development pipeline, warning that the combination of these factors will soon cause a shortage of business space.
However, this attempt to socialise rental growth expectations ultimately fails for two reasons.
First, a tight pipeline will not lead to rental growth if there is insufficient demand to fill the existing space.
To see this, recall how prime office rents in Dublin plummeted in the early 2010s, long after the development pipeline had run dry. Demand for office space in Dublin is currently weak, not strong, fundamentally because office-based employment is contracting and remote working is continuing to expand.
[ Leasing in office sector continued at ‘solid’ pace in second quarterOpens in new window ]
Second, the argument is self-defeating. Like the flight-to-quality, the tight development pipeline indicates market weakness.
It signifies that specialists who know the business are unwilling to risk their capital on Dublin offices. If they don’t believe the rhetoric, why should anyone else?
Dr John McCartney lectures in property economics at TU Dublin and is adjunct associate professor at UCD
