Office Tenants Trade Quantity For Quality As Vacancies Appear Set To Peak In 2024
Office take-up in Dublin fell sharply in Q3, with average deal sizes dropping by more than half as tenants targeted greener properties, according to a new report by BNP Paribas Real Estate Ireland.
With the tech sector remaining largely dormant, the agent expects vacancies to peak in 2024, but added that with a subdued development pipeline, the market should be “quite manageable.”
Per the report, Dublin occupiers took less than 312K SF, a 63% drop over Q3 2022. This was mainly attributable to the average deal size plunging from 16.3K SF to just over 7K SF.
BNPPRE Director of Research John McCartney said the office vacancy rate had risen to 12.5% and is expected to peak at around 16% next year as a number of office schemes reach completion without a pre-let in place.
“Over the last 18 months, we have been cautioning that an oversupply situation was coming, and this has proved to be correct,” McCartney said. “However, the construction pipeline has never gotten too far ahead of demand, so peak vacancy is likely to be quite manageable by historical standards.”
McCartney predicted a “relatively shallow downswing,” though it could last for some time because remote working has weakened the relationship between jobs growth and office demand.
He said two factors are driving the trend toward smaller deals: First, demand has shifted away from tech firms, which traditionally have bigger office requirements. Second, occupiers are taking advantage of remote working to reduce their office space.
Tech accounted for 8.4% of take-up between July and September, the lowest share on record.
While lettings are getting smaller, occupier preferences have swung toward better buildings. BNPPRE Head of Office Agency Keith O’Neill said hybrid working has caused organisations to think of their workspaces as “talent magnets.”
“Full employment and hybrid working have made it harder to recruit, engage and retain staff,” O'Neill said. “This is causing firms to ensure that their buildings provide the most welcoming, flexible and efficient working environment possible for staff when they are on-site.”
Sustainability objectives are also driving this dynamic. Because rents are significantly higher for green buildings, BNPPRE said some organisations are funding their transition to low-carbon premises by reducing their space, with 12.3% of this year’s office take-up accounted for by companies downsizing, and 72% of that space with a building energy rating of A.
