Dublin’s office market is predicted to take a positive turn this year as commercial property agency HWBC says that tenant activity is nearing the bottom of its post-pandemic contraction.
In its latest office review and outlook report, HWBC said that 2023 was a “challenging year” for the Dublin office market as total take-up was 1.36 million square feet, down 50 per cent on 2022 levels. New office completions in 2023 added 1.18 million square feet of space, bringing the overall vacancy rate to 16 per cent.
Paul Scannell, head of offices at HWBC, said that despite negative sentiment in the office sector in the past year the market is “at or close to the bottom of its contraction post-pandemic”.
“With renewed tenant activity in January take-up will be higher this year, with the potential to reach around 2 million square feet and closer to the long-term average for the market,” he said.
There is now 3.6 million square feet of space under construction in Dublin to be completed by the end of 2025, with around 43 per cent reserved by the end of last year. Three employers – Google, Citi and KPMG – are responsible for more than half of the reserved space.
The report notes that there could potentially be a shortage of prime space in Dublin’s central business district by 2026 as the majority of currently available new buildings will be leased up by the end of 2025, and financing for new schemes will be difficult without pre-lets.
HWBC said that companies continue to be cautious on office requirements due to higher costs, political uncertainty and structural shifts in work patterns.
It noted that there was only one deal for more than 50,000 square feet last year, compared to 10 in 2022 – although HWBC said numerous large deals are expected to be completed this year.
Meanwhile, demand for smaller office spaces remained “robust” as the average office deal size was 8,250 square feet in 2023.
HWBC said that it expects demand this year to be driven by finance and professional sectors, life sciences, pharma and health-related companies, as well as government bodies and agencies seeking to upgrade to more energy-efficient offices to meet carbon-reduction targets.
It added that it does not expect take-up from technology companies that are still adjusting from pandemic expansions. Last year the tech sector accounted for just 25 per cent of office market activity, down from a peak of 60 per cent in 2018.
The report notes that Dublin’s office market is now “fragmented” into newer energy-efficient stock that is in high demand, and older less efficient buildings “which are becoming increasingly difficult to let”.
Mr Scannell said that rent levels for the highest quality office stock in Dublin’s central business district will hold, with most of the available Tier 1 stock expected to be leased by the end of 2025.
He said the question of what to do with older office stock will remain “a hot topic” as proposals to convert it to residential space may be difficult to achieve “due to the smaller lot size of the early generation stock in Dublin and the cost of conversion without financial incentives”.
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