Tech Exits Hit Dublin Office Deals But Hope Of Turnaround in 2024
The rapid adoption of remote working plus a slump in demand from the tech sector have hit the commercial real estate sector in Dublin during the first half of the year.
Just under 710K SF of office space was let between January and June, down over a quarter on the same period in 2022 and almost a third below the 15-year average, according to BNP Paribas Real Estate Ireland’s latest report on the office sector.
The adviser said that the drop comes despite Ireland creating jobs at twice the average rate across the European Union.
"As predicted in our Q1 report, office leasing in Dublin picked-up somewhat between April and June. Nonetheless, it remains subdued by historical standards, with less than 431K SF taken," BNPPRE Director of Research John McCartney said in the report.
"Considering H1 as a whole, nearly 710K SF of purpose-built space has been leased since the start of the year. This represents a 27% discount on H1 2022 which, in itself, fell short of the long-term average.”
With 97 lettings in the first half representing an almost identical number to H1 2022, average deal size fell from 10.2K SF in H1 2022 to 7.3K SF in the first six months of 2023. Downsizing moves accounted for 21% of the space that was leased in Q2, up from just 3% in Q1.
The report found that tech firms accounted for just 12.6% of Dublin office take-up in the second quarter of the year, compared with the period between 2017 and 2020 when tech firms represented 53% of office space leased.
The situation has been further exacerbated by the proportion of Irish employees who sometimes or usually work from home, which rose from 19.9% in 2019 to 36.2% in 2022, the largest percentage point increase of any EU country according to Eurostat.
However, this has been partially offset by strong demand from professional and financial services tenants, including aircraft leasing companies, BNPPRE said.
It forecasts that take-up for the full year is likely to be 1.6M SF-1.8M SF.
“This will not be sufficient to absorb the net additional space that is delivered. Therefore, vacancy will kick-up towards 15% by year-end. This is likely to put pressure on rents, even at the prime end of the market," McCartney said.
BNPPRE expects vacancy rates to peak at “manageable levels” later in 2023 or early 2024 and then fall as the office construction pipeline slows.
