From a position in the first quarter of 2020, when record-leasing activity was achieved and office demand was at an all-time high of more than 430,000sq m, following the onset of the pandemic, take-up in the Dublin market slowed considerably.
Most organisations were solely focused on their core businesses and in no position to make significant expansion or relocation decisions, not to mention being unable to travel to inspect buildings. Office leasing activity remained subdued throughout 2020 and the early part of 2021.
This year has, however, been one of two halves. The third quarter saw a notable resurgence in activity, with take-up in the quarter reaching close to 40,000sq m – almost double the volume achieved in the first two quarters of the year combined. The third quarter also saw a further decline in the overall level of vacancy in the capital to 8.8 per cent. This is radically different to the last cycle, when the supply-demand equation was completely different, with much of the stock that is currently under construction already committed. Indeed, much of the increase in vacancy in 2020 comprised grey space, almost all of which has since been let.
Although not filtering through into transactional activity yet, occupiers have reignited searches for office accommodation and announced new requirements in recent months. Indeed, active demand was almost back to pre-pandemic levels at the end of the third quarter. Despite increased activity, and some notable transactions having been signed during the fourth quarter (such as the letting of more than 20,000sq m to TikTok at the Sorting Office – the largest letting signed in Dublin in 2021), negotiations are proving protracted, with some transactions now likely to carry over into 2022.
Stabilised rents
Prime office rents in Dublin have now firmly stabilised, having declined about 11 per cent peak-to-trough in this cycle. The next movement is likely to be upwards as new evidence materialises in due course. The gap between rents for prime and secondary buildings is continuing to increase as both occupiers and investors increasingly favour more modern and sustainable buildings over secondary alternatives.
Occupiers are attracted to buildings where landlords have prioritised placemaking, health, wellness and sustainability and where there is evidence of a partnership approach between tenant and landlord. Landlords that reacted quickly and were willing to accommodate earlier break options in leases benefitted over the last 18 months, as this decision solidified rental tone in their schemes and allowed them to establish a base from which they could reintroduce longer-term certainty on subsequent transactions.
As we look to 2022, there is every reason to be confident about prospects for the Dublin office market considering the volume of outstanding requirements for accommodation and the extent of jobs growth in the economy. Supply is constrained, which will lead to competitive tension and in turn rental growth in due course.
It is clear that occupiers still need offices but the configuration of buildings will be different and they will be used and occupied in a different way due to blended working. As a result, occupiers will have to be more strategic and selective in their decision-making. Investors also continue to focus on office investment opportunities, and it is very telling that prime office yields have remained absolutely stable at 4 per cent throughout, despite the pandemic.
Alan Moran is head of investor leasing with CBRE Ireland
