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Office rents set to drop as firms rethink requirements



Working capital: Rents are set to fall in Dublin

Working capital: Rents are set to fall in Dublin

Working capital: Rents are set to fall in Dublin

Office rents are expected to fall and vacancies rise as occupiers rethink their post Covid needs to reflect more working from home, and in some cases fewer staff

Large employers in Dublin "will no doubt seek to establish more permanent remote-working protocols and structures," Deloitte Ireland says.

Some offices would become "destination workplaces" used primarily for client and staff engagement, training programmes, and the most "collaborative" elements of work.

New reports by commercial property agent CBRE and Deloitte say the Covid-19 crisis is likely to result in more subletting of unused space into a 'grey market'.

Offices will be let at lower prices, including the sublets by tenants seeking to minimise losses on their own idle floor space.

Deloitte said demand should weaken as occupiers "consolidate existing offices and reduce commercial footprints".

"This will ultimately reduce headcount ... as more flexible working practices for staff become the norm and companies seek to reduce what is a large operating expenditure, reducing floor space requirements," Deloitte said.

Office vacancies were likely to rise in the coming quarter amid what Deloitte called "reduced take-up of new stock".

CBRE Ireland said central Dublin's average rental cost of €700 per sq m would come under pressure as lessors offer extra incentives to secure longer lets. These can include offering up to the first year free on a 10-year lease.

Despite such offers, many firms are "unwilling to commit to long-term leases in the current climate", CBRE said, in part because firms are "unsure of their future headcount".

It said some office occupiers have renegotiated rental terms to their advantage while others have begun "looking to sublet excess office accommodation in recent weeks".

While less than 6.7pc of Dublin offices were vacant at the end of June, CBRE sees that rising.

The main support against rent reductions, it said, was the market's low overall activity.

There is "very little new office accommodation that hasn't been pre-let due for delivery in the next 12 months", while commencement of other schemes has been postponed, CBRE said.

Of 12 planning applications for new offices in the second quarter, just two are in Dublin.

Lettings that have been agreed are by sectors insulated from the crisis: supermarkets, pharmaceuticals and the State.

In June Aldi signed a 15-year lease for its buying and marketing teams on a 3,748-sq m office at Millennium Business Park in Naas, Co Kildare.

In July, the Office of Public Works (OPW) struck a 20-year lease with Irish Life for 3,903 sq m inside 1GQ, the former Ulster Bank complex on George's Quay in Dublin. Ironically, Ulster Bank has paused a search for its new headquarters, as it reassess its post-Covid needs.

In July US pharmaceuticals firm Gilead agreed terms on 2,788 sq m at North Dock Two, a scheme under construction in Dublin, and drug maker Regeneron sublet 1,300sq m from Bord Gáis at One Warrington Place in Dublin. That five-year contract cost less than €650 per sq m.

CBRE said some firms were seeking "to take advantage of the ability to negotiate keener deals in the current climate".

Irish Independent