Every journey starts with a single step, and Dublin’s office market has taken an important step towards stability in recent months. Following a sluggish 2023, take-up plummeted to just 16,300sq m in the first quarter – the lowest “peacetime” figure in a decade.
However, things have improved considerably since then, with 134,000sq m of business space taken-up in quarters two and three. This is 36 per cent above the 10-year spring-summer average and, with the fourth quarter usually benefiting from seasonality, full-year take-up of 200,000sq m now seems realistic.
These green shoots have generated considerable optimism, and agents can point to legitimate positives. Tech leasing, which once represented more than half of the market, has not recovered from the 2022 “tech wreck”. However, advances in artificial intelligence (AI) are generating a new wave of job opportunities, and tech employment in Dublin has rebounded by 11.3 per cent in the past six months, according to figures from the Central Statistics Office (CSO). This has not yet affected office lettings – the tech share of take-up actually reached a record low of 7.1 per cent in the third quarter. But logic suggests it should support business space demand in the longer run. In addition, there is reassuring evidence that those sectors that traditionally underpinned the market before Dublin became a global tech hub remain relevant. Together, public sector, financial and professional services organisations took nearly 52,000sq m of space in the first three quarters, a reminder that the city’s underlying demand base is well diversified.
Nonetheless, significant headwinds remain. Remote and hybrid working have negatively affected the market in two ways. Firstly, with their staff partially stationed at home, new tenants are taking smaller quantities of office space per employee. Traditionally, the standard occupational density was 10sq m per person. However, the market’s latest high-profile letting illustrates how this ratio has dropped. From the reported details, Deloitte appears to be planning for less than 6sq m per employee at its new offices on Adelaide Road.
The second consequence of remote working is that it left existing tenants with surplus accommodation, which they are now offloading. When it gets relet, this tenant-offered “grey space” is counted in take-up. Critically, however, it does not add to overall occupancy; this space was occupied before being sublet, and it remains so afterwards, with only the rent-payer’s identity changing.
The reality is that vacancy at the bottom of the market will eventually drag on rents at every level through an indirect process
Hopes that the drag on demand from remote working would be resolved by a strengthening return-to-the-office dynamic appear to be fading. CSO figures show that the proportion of employees working remotely, and the number of days they are spending at home, have both now stabilised at well above pre-Covid levels.
Office vacancy has risen from 5 per cent to almost 16 per cent over the past five years, leaving Dublin with one of Europe’s highest office vacancy rates. Ideally, rising vacancy should have led to an earlier curtailment of supply, but a significant quantity of new space remains in the pipeline for delivery in the third quarter and into 2025. The recent pick-up in leasing is a necessary first step in digesting this. But with grey space impacting the conversion rate between take-up and increased occupancy, vacancy will continue rising in the short term.
With tenants favouring low-carbon offices, vacancy will eventually concentrate in older properties. Some argue this provides protection for prime rents. But the reality is that vacancy at the bottom of the market will eventually drag on rents at every level through an indirect process. Owners of vacant older blocks will have to cut rents to get their buildings occupied; this will cause owners with slightly better buildings ahead of them to counter-cut. In turn, this will put pressure on owners of buildings that are slightly better again to cut their asking rents, and so market forces will eventually be passed up the chain.
Dr John McCartney is director of research at BNP Paribas and adjunct associate professor at UCD
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