Ireland is facing an office block supply “shock” over the next 12-18 months due to construction stalling as result of the recent sharp downturn in commercial property, according to Gresham House Ireland, a specialist investment management firm.
It comes as Dublin office lettings and prime rents picked up in late 2024, following a period of turmoil in the sector following a spike in interest rates and construction costs, a wobble in the technology sector and a change in working practices in the wake of the Covid-19 pandemic.
“The stalling of new construction in the commercial sector has major implications for our economy and we risk running into a housing-style crisis for offices and places to do business within a very short time frame,” said John Bruder, executive chairman of Gresham House Ireland Real Estate.
He said a shortage of “future-proofed, sustainable buildings” would become increasingly evident in the short term.
The scale of new office completions in the capital is on track to fall to a million square feet (92,903sq m) in 2026 from 2.1 million in 2024, according to estate agents. The 459,000sq ft building being constructed by Johnny Ronan’s Ronan Group Real Estate in the north quays, mainly to house Citigroup’s new European headquarters, will account for a large portion of next year’s completions.
[ Ronan Group reaches fresh heights at Citi’s new European headquartersOpens in new window ]
Savills said in a report last month that the vacancy rate across offices in Dublin 2, the city’s prime office hub, is set to “strongly contract over the next 12-18 months”, after it soared from 5.7 per cent in 2021 to 15.4 per cent at the end of last year. It said prime benchmark rents grew by about 4 per cent to €65 per square foot, the highest level on record and representing the first quarterly increases since the middle of 2022.
Gresham House Ireland Real Estate is a result of UK asset manager Gresham House’s Irish business acquiring Burlington Real Estate in 2022. Burlington was set up a decade earlier by Mr Bruder and Niall Kavanagh, both former executives of Treasury Holdings, which was co-founded by Mr Ronan and seized by its creditors the same year as the property bubble burst. Burlington took on the management of some of Treasury’s former assets at the time.
Current institutional-grade Irish commercial property values remain 25 per cent below their pre-Covid levels despite the strength of Ireland’s economic rebound since then, according to Gresham House Ireland.
“There are strong signs the tide has turned in investor sentiment towards Irish commercial property, with yields close to double what’s on offer from the 10-year Irish Government bond yield,” said Mr Bruder.
The yield – or market interest rate – on Ireland’s 10-year bonds is currently close to 3 per cent.
“Irish commercial property markets look cheap by reference to most major benchmarks. Construction of new offices has all but stopped as values are not yet above construction costs and something has to give,” said Mr Bruder.
