The vacancy rate in the Dublin office market is currently estimated at 10.5%, up from 10% last December, according to estate agent BNP Paris Real Estate.
John McCartney, Director & Head Of Research, said that a substantial amount of new office space has been delivered in the opening months of 2022, with more to come by year-end.
“In net terms, it is unlikely that this additional space can be absorbed within the calendar year, meaning that vacancy rates will continue to edge up,” he commented.
BNPRE’s Q1 analysis states that overall the Dublin office market is performing in line with expectations. Take-up is on an improving trend and increased uncertainty is benefiting flex-space operators such as Iconic Offices, Pembroke Hall and Regus who have recently taken or are seeking space.
Nonetheless, at this early stage of the year it seems unlikely that take-up will reach its 10-year average in 2022, according to McCartney.
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He reports that rents are rising at the top of the market, propelled by the demand for modern, sustainable buildings and the scarcity of such properties.
However, increased vacancy has subtracted from competition in the second tier, leading to more tenant-friendly terms for older offices.
“This will continue to put pressure on the returns generated by older buildings in their existing trim,” McCartney states.
“The cost of redeveloping or refurbishing these assets is rising rapidly, and it will be interesting to see how the owners of these properties navigate this challenge in the coming quarters.”
BNPRE reports that occupiers are taking their time before committing to new office leases as employers develop remote working policies and consider the knock-on implications of these for the quantum and configuration of office space required.
Headline rents for the best buildings in prime locations are still firming because relatively few such properties are available and competition is strong.
“However most buildings are not of this specification and, for older offices there are signs that the commercial terms of leases have moved in tenants’ favour,” McCartney notes.
“Average headline rents in the city centre have edged down slightly over the last six months, while average lease terms have shortened and break options are coming earlier.
“Buildings that were constructed since 2010 have rebounded while older properties from the 1970s and 1980s are lagging."
Looking further ahead, BNPRE expects office development to slow in 2023 and 2024 and that Ireland’s economic outperformance and the increasing orientation of the economy towards service activities should underpin office space demand.
