The office market is facing intense scrutiny, with headline vacancy figures that appear rather bleak at first glance. Media articles on the topic have not shied from giving voice to this pessimism, often amplifying market reports which aim to present a morose outlook. The narrative resonates with the predictions of physical retail’s death, which never happened. These assessments seem to forget that the office, in the traditional sense, is going through a metamorphosis or “reset”.
The office is not dead. Following another year of transition for many occupiers in 2023, there has been an improvement in demand as occupational strategies emerge, and many companies have reached an equilibrium in office attendance.
JLL global research shows that most employees work from the office an average of 3.1 days per week. Eight of the world’s 10 largest technology companies are now mandating at least three days per week in the office. As economic conditions improve this year, leasing volumes are expected to rise by up to 10 per cent. Additionally, our research shows that over the next three to five years, 29 per cent of our clients’ organisations plan to expand their office space.
It is important that we put today’s market into context. Relatively speaking, the current vacancy rate, while elevated, has not reached a height that would indicate the market has been abandoned in droves.
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Our most recent vacancy rate for Dublin is in the region of 14.9 per cent, or roughly 650,321sq m (7 million sq ft). This number is elevated, but when we look under the hood, there is a much more nuanced story to tell. This volume of vacant space is 21.7 per cent below the record volume of vacancies recorded in 2010.
It should also be noted that with a market size of 4,394,313sq m (47.3 million sq ft) in 2024, the market is 22.9 per cent larger than what it was in 2010. This indicates that there are still relatively high occupation rates, and vacancy is trending better than in other historical downturns. It is too soon to claim that so-called “ghost offices” are a common trend around the city.
The likening of office vacancy rates in Dublin to that of ghost estates in the aftermath of the global financial crisis is akin to comparing apples to oranges or an unfinished three-bedroom semidetached house to premium office space with a WiredScore platinum rating in the docklands.
The Dublin office market has an elevated vacancy rate, but this will change in the long term, and when that happens, it will change fast. Two connected factors will make this the case, and they should be of no surprise.
In the first instance, the flight to quality by investors and occupiers will intensify closer to 2030. Environmental, social and governance considerations are now at the forefront of any significant office decision-making.
Secondly, the pipeline of suitable space is already drying up, and by 2027, sustainable grade A space will not be available.
JLL Ireland has undertaken a comprehensive analysis of the Dublin office market, resulting in a regrading process. Employing a rigorous scoring matrix, each building in the market has been evaluated on various criteria, such as location, building quality, and their green credentials.
Through this process, we have identified 241,548sq m (2.6 million sq ft) of grade A+ space (regarded as the best of the best), which is 5.5 per cent of the market.
Grade A+ space is expected to grow in 2024, with a further 241,548sq m (2.6 million sq ft) of space due for completion. However, the new supply pipeline will drastically drop from 2025 onwards, with no new building scheduled for completion beyond 2027.
The vacancy rate in the city centre should not be a cause for alarm, with 66 per cent of this space being either grade A+ or grade A. This is all highly desirable space that will be absorbed gradually as the proverbial heat around sustainability gets turned up for occupiers.
So the question that should actually be asked today is not what the city should be doing with the current vacant office space, which is in a temporary transition due to economic conditions, but what will it do with the significant portion of that office space that is not future-proofed?
We estimate that 61 per cent of Dublin’s present office space will become functionally obsolete within five years. No doubt conversions into other uses will take place, and as ever, we need planning policies that are sympathetic to the inevitable changes.
Meanwhile, building owners within the other 39 per cent of offices that are already future-proofed will seek to reap the rewards as occupiers move to suitable space. To put it simply, a squeeze will be on the horizon for the office market by 2027.
Niall Gargan is head of research at JLL Ireland
