Dublin office market in downturn as vacancy rates head for 15pc

Dublin office market was hit with downshift when Covid spread and it has not recovered, BNP says

John Mulligan

Dublin’s office market is “definitively” in the downturn of the current cycle, with vacancy rates heading to 15pc and rents under pressure.

But John McCartney, director of research at BNP Real Estate Ireland said there’s “nothing sinister” in the current position, with a relatively small amount of new office space due to come on stream between 2024 and 2025.

That means there won’t be a glut of empty space coming to the market, which should mean that rents eventually stabilise and rise again.

A report this morning from BNP said that hybrid working and stalling employment growth in the tech sector contributed to what it described as a “slump” in office lettings in the capital during the first three months of the year.

Take-up in the first quarter was just 26,500 sqm. While the number of deals rose year-on-year, there was a 44pc slide in the average deal size.

And inflation has also battered rents across the office market. While rents for high-end central business offices rose in the first quarter, they’ll stall in coming months.

Average rents fell 5.6pc in nominal terms year-on-year during the quarter but with inflation running at 7.7pc in the period the real decline has been much more severe.

“The tech slowdown has caused a shift from big multinational tech companies seeking large quantities of space to our traditional baseline of domestic professional and financial services firms, whose space requirements are typically smaller,” noted Keith O’Neill, head of agency at BNP Real Estate.

The report notes that while the slumping rents pose a challenge for developers and landlords, Mr O’Neill said it has provided opportunities for smaller tenants willing to consider older buildings.

Mr McCartney added that average lease terms plunged in recent years. He pointed out that in Dublin city centre during the final quarter of 2018, the office lease term was 13.44 years. In the first quarter of this year, it had tumbled to just under seven years.

“There was a once-off downshift once Covid hit, and it’s never really recovered since then,” he said. “We’re definitively in the downswing of the current cycle. This is just a normal cycle. It’s nothing sinister.”