2021 was the weakest year for Dublin commercial rents for nearly a decade, but 2022 could be the most productive year in terms of delivery of new office space in the capital since the financial crisis, according to BNP Paribas Real Estate Ireland.

A new report from the property consultants shows the vacancy rate in the Dublin office market stood at 10% last year, the highest level recorded since 2012, and completion of a number of projects was deferred due to lockdowns faced by the construction sector in 2021.

The postponed completions have added to the pipleine of office space due to become available, with report author John McCartney, director of research at BNP Paribas Real Estate Ireland, has estimate up to 240,000 sq m (2.6m sq ft) of new office space could be completed this year.

Commenting on the outlook for the market, McCartney said: “Due to the strong construction pipeline we expect Dublin’s office stock to rise by over 200,000sq m in 2022. Ordinarily lettings of over 300,000sq m would be needed to absorb this extra stock.

"This is because the tenants who lease space are often moving out of existing accommodation, leaving vacancy behind.

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“Approximately 155,000sq m of office space was leased in Dublin during 2021. Despite the improving trend occupier caution about the return to offices means that it will be challenging for this figure to double in 2022. As a result we don’t expect vacancy to tighten this year.”

McCartney warned, however that despite leasing activity recovering and approximately 75,000 sq m of space having been reserved as we entered the new year, vacancy could "edge higher" in 2022 due to underwhelming demand, which would have a knock-on effect on rents.

Prime headline rents in Dublin were some 7.6% off their pre-pandemic peak in 2021 at €619 per square metre per annum, and a recovery may not materialise until 2024, the report concluded.

"Years of empirical research, including on the Dublin market, have established a fairly reliable inverse lagged relationship between vacancy rate and rental movements," McCartney explained.

"With vacancy up in 2021, this suggests that average rents may slip further in 2022, and tenant incentives may increase. Following the same logic, with completions likely to exceed absorption in 2022, rental terms may move further in favour of tenants next year too."

McCartney also suggested that the price gap between older and newer buildings will continue to widen as corporate occupiers consider only "best in class" offices with the appropriate environmental certifications.

The report found that IT companies accounted for 55% of office uptake from 2017-2022, while activity in the professional services sector rose from 6.5% in that three-year span to almost a third last year.

"In part, this reflects the pattern of jobs growth - professional services employment in Dublin rose by 33.4% in the 12 months to September 2021, and accounted for 46% of all the service sector jobs that were created," the report noted.

"But in a small market like Dublin, particularly in a relatively sluggish year, the distribution of lettings can be heavily influenced by a few large deals."

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