Tuesday 26 September 2017

Lack of office space handicaps our tech hopefuls

Nama may yet be a crucial player in freeing up frozen office stock around the city
Nama may yet be a crucial player in freeing up frozen office stock around the city
Adrian Weckler

Adrian Weckler

Some might call it the ultimate First World problem. But tech companies around Dublin's booming Silicon Docks are facing a serious setback: they can't get new office space.

Some that want to expand here can't, because there's nowhere to house new staff. Others are panic-booking floors they don't need to stave off future capacity constraints.

It's an infrastructural mess that looks set to get worse before it improves.

Last week, I spoke to a couple of Dublin-based tech companies about it. One of them is Nitro, a well-funded software company with offices in Australia and San Francisco. In 2013, it set up an office here and now employs 40 people in its Grand Canal premises. But it's growing fast and wants to build out a high-end engineering team in Dublin, bringing it up to 100 people.

The problem for Nitro, and firms like it in Dublin's new tech strongholds, is that there is no office space left to expand into.

"We want to do more engineering here and we're ambitious for Dublin to be an engineering centre for us," said Nitro founder Sam Chandler.

"But that depends on us having somewhere to actually work. The office market here is really a big problem for us and for other companies in our area."

Chandler's experience is backed up by what property specialists are saying. The most recent report from property agency Jones Lang LaSalle says that the "prime" office market is now the "strongest ever recorded", meaning there is almost none left to rent. In some areas, vacancy rates are as low as 1pc.

Last week, the head of the Society of Chartered Surveyors of Ireland (SCSI) said that the current shortage of "prime" office space "poses a threat to our international competitiveness in terms of attracting foreign direct investment".

And the shortage is being made worse by big companies panic-leasing buildings and leaving them vacant.

Google recently extended its office space footprint in Dublin's prime tech area by tens of thousands of square feet. But according to those within the company, it is not using anywhere close to the full complement, nor is it sub-leasing the space. It's simply sitting on the square footage in case it needs it in future - because it knows it will be screwed if it needs more space in a year's time.

And Facebook and LinkedIn are doing something similar, with both companies booking far more space in Dublin 4 office blocks than they expect to populate within the next year.

Is this a sufficiently serious infrastructural problem to make tech companies leave Ireland? No, say tech bosses. But it could stymie - or even cancel - plans for expansion or creating better-paid jobs.

"It doesn't mean that tech companies are necessarily going to bolt, but it will pull back some of the ambition," says Chandler. "Building talent groups out is crucial but even that depends on us having somewhere to actually work."

Some may ask: why can't these companies just get an office in another part of the city where there's more space? The answer is that top-tier staff won't work there.

To be blunt, it's rarely a problem recruiting for a call centre in a suburban industrial business park due to the plentiful supply of labour for those roles. But it's a very different story for high-end engineers. These are scarce and, thus, have their pick of companies.

"Many of the people we need to hire just don't want to work out in the suburbs," said Chandler. "We'll look at other areas further out if we absolutely have to but there's a very different dynamic to having an office there. Almost a third of our staff now bike to work. And lots of others either walk or take a Luas."

This is no different to the talent issue facing top firms in any sector, whether it's tech, legal or finance. Many corporate rising stars won't work in a Citywest or Blanchardstown office block, unless it's necessitated by environmental factors, such as manufacturing (in the case of Intel or pharmaceutical facilities).

But even taking this into account, is this essentially a First World problem? Only if you regard high-end foreign direct investment as peripheral concerns.

And this is where the response of agencies such as the IDA, Enterprise Ireland and government ministers will be critical. If a 'job' is merely a ticked political or industrial box, regardless of seniority or productivity value, it's easy to consign an issue such as a 'prime' office space shortage to a lesser tier of concerns.

But if we're serious about walking the walk about Dublin - and Ireland - becoming a genuine tech centre, we surely need to take such constraints seriously.

Because they don't exist to the same extent in London or Berlin - which are served far better by a diversity of premium zones and neighbourhoods.

And Dublin needs to start attracting higher-value tech investments than customer and financial support functions.

"If Dublin wants to be the tech capital of Europe - or the world - it needs to look more at what it needs to do now," said Chandler.

"The IDA has gone out and done a great job of getting a lot of tech companies to come here.

"But what now? There are a lot of bits that have to happen now and office space is one of the biggest."

So is anything happening?

The IDA and government spokespeople say that a new "special development zone" around Dublin's docklands has been passed to allow speedier planning development for new office blocks. But it will still take years.

In a best-case scenario, planning granted this summer for new office developments won't be ready until 2017. And that is an entire investment cycle away.

Nama, which is reportedly to sell €8bn of property loans soon, may yet be a crucial player in freeing up frozen office stock around the city.

But for tech companies with ambitious plans here, it needs to happen sooner rather than later.

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