Declan O'Reilly: 'Global tech giants dominate investment in Dublin office market in 2018'
Around 1.3 million sq ft has signed in the final quarter of the year so far, putting the total volume of take-up in the office market for 2018 to date at 3.5 million sq ft, just short of the 3.6 million sq ft that transacted in 2017. However, there are a number of large deals, that if signed before the year end, could push this figure above the 4.0 million sq ft mark, or if not, will provide a significant start to 2019.
The year was defined by significant lettings in Dublin by Google and Facebook. Facebook's taking of 870,000 sq ft at AIB's former Bank Centre headquarters in Ballsbridge is the largest single office letting in the history of the State, unprecedented by any city's standards.
By comparison, the letting is greater than the 598,348 sq ft that Facebook pre-let in King's Cross Central in London this year, a fact that copper-fastens Dublin's reputation as an international tech hub.
Google expanded its HQ operations in the Dublin Docklands through the acquisition of Boland's Quay - which un completion next year will contain 220,732 sq ft of office space - and the letting of One Grand Canal Quay (58,000 sq ft). Google also made its first foray into the Sandyford office market with deals at the Chase (52,925 sq ft) and the Blackthorn Building (48,522 sq ft).
Excluding buildings in development, Google and Facebook, along with Microsoft/LinkedIn and Amazon, now occupy a footprint totalling 2.2 million sq ft, a figure on par with their current footprint in London.
Attention will inevitably turn to the next wave of tech occupiers scaling up in Dublin. These include HubSpot, who will occupy all 112,000 sq ft at 1 Sir John Rogerson's Quay, while maintaining their presence at One and Two Dockland Central. Companies to watch in 2019 include Intercom, DocuSign and Asana.
The past year was also characterised by the rapid growth of co-working. This was driven by WeWork which took almost 312,000 sq ft across No 2 Dublin Landings, Charlemont Exchange, 5 Harcourt Rd and Central Plaza, which is being redeveloped. Co-working has been a valuable intermediary for the large tech firms, facilitating their growth while they await the development of larger schemes for their future requirements, as evidenced by Amazon's taking of the WeWork Space at 5 Harcourt Road.
While tech and co-working stood out, the IDA's letting at Three Park Place (112,000 sq ft) is an example of the large requirements currently held by the State which will be a significant driver of take-up again in 2019. Despite initially taking space with flexibility to expand, many professional services firms are now at capacity. In 2019, they will be looking for additional space either within, or near, their existing operations as shown by Deloitte's letting of 31,300 sq ft at Three Park Place near it's current premises at Earlsfort Terrace.
Looking at Brexit, Knight Frank's 'Brexit Under Pressure' report has shown that Dublin has won the most Brexit announcements of any European city, with 48 so far. However, despite this, transfers from London have been modest in 2018. Notable Brexit-related lettings included Simmons & Simmons and Standard & Poors who took 5,306 sq ft and 4,967 sq ft respectively at Waterways House. If a hard Brexit were to emerge, companies could significantly increase their footholds here in 2019, particularly tech occupiers who are concerned by the uncertainty regarding UK visas post-Brexit.
In terms of development activity, around 2.3 million sq ft of space will be completed this year. In 2019 we are predicting a moderation, with 2.0 million sq ft expected to be delivered, of which 27pc (534,000 sq ft) is pre-let. Of this, 1.3 million sq ft will be completed in Dublin city centre, where 30pc (408,000 sq ft) is pre-let. This dip in activity could result in renewed pressure on prime rents. Notable schemes will include Ballymore/Oxley's 3, 4 and 5 Dublin Landings (309,161 sq ft), the DAA's Two & Three Dublin Airport Central (207,000 sq ft), TIO's North Docks (201,059 sq ft) and Green Reit's Building at 1 Central Park (99,480 sq ft).
An interesting development in 2019 will be the increased attractiveness of Dublin 8 as an office location. Areas along the edges of Dublin 2 such as Thomas Street are already benefiting from spillovers in occupier demand from the city centre which is prompting new development. This is being driven by the fact that rents here represent a significant discount relative to the €62.50 per sq ft that prevails in the city centre, with Oakmount's 61 Thomas Street - which will be completed in 2019 - quoting €45 per square foot. However, in order to rival the city centre as an office location, schemes of critical mass and scalability are required. As such, Diageo's St James's Gate scheme, which will provide approximately 560,000 sq ft of office space, will be crucial to the future of Dublin 8 as a prime office destination. In conclusion, 2019 is expected to be another strong year for the office market with at least 3.0 million sq ft expected to transact, driven strongly by the tech sector.
Declan O'Reilly is a director and head of office agency at Knight Frank