Ireland’s City Hubs Look To Challenge Dublin's Dominance

With Dublin skirting around the edges of its first real estate crisis since 2008, the city’s unrivalled position as the commercial, logistics and residential hub of Ireland faces fresh challenges from regional cities, especially given the go-ahead for extensive development plans in Cork.

But the key question is whether Cork, Galway and Limerick can unlock their own chronic residential shortfall problems and encourage multinational businesses to look beyond Dublin to cheaper office space and more affordable and available homes.

Dublin's office market has seen take-up drop, but rents remain high for quality buildings. The ongoing housing shortage also means that finding somewhere to live in Dublin is becoming even tougher, and rents remain high.

The dearth of accommodation has spread to the student world, with too few bedrooms available to meet demand among university pupils in Dublin’s educational facilities.

The development of Ireland's regional cities means companies are no longer forced to look at the capital when choosing where to base their operations. In a virtuous circle, better real estate is attracting more companies, which benefits real estate.

"In previous years, a challenge we have had in Galway, Cork and Limerick has been that the quality of product wasn't there," Cushman & Wakefield Regional Director Patricia Staunton said. "Now we have Navigation Square, Penrose Quay and Horgan’s Quay in Cork, for example, and as they have come online, that has enabled the IDA to ramp up their activities because the commercial space is there for incomers."

The Irish economy remains in good shape compared to its European peers. Davy Chief Economist Conall Mac Coille said that although the company has revised its projection for Irish gross domestic product down to 5.5% in 2023, the Industrial Development Authority has attracted 135 fresh investments into Ireland so far this year. The body is responsible for attracting companies and investment to Ireland.

"What we have noticed is that the large companies with 1,000 jobs upwards will typically go to the capital because they have confidence and comfort around employee numbers," Staunton said. "On a regional frame, at the 300-to-500-employee scale, they're confident they can ramp up that number of people within a year or so. There's enough of a pool there, and the other thing the incoming companies have noted is the attrition rate in terms of employees leaving. It's a lot less regionally."

The frustration for Ireland’s second-most-populous city, Cork, is that like Dublin, the lack of available housing remains a chronic issue. 

However, planners have given the go-ahead for the construction of Phase 1 of a €350M mixed-use scheme, which is planned to include 160 apartments. The first significant residential development on the city of Cork’s docklands marks the initial stage of what could be a major real estate boost for the city.

Cork’s docks are earmarked for up to 20,000 residential units at locations including Kennedy Quay, along Centre Park Road and the Marina, at the Live at the Marquee site and on the north docks, including Horgan's Quay, with a number of planning permissions granted.

The council is seeking consultants to assist its plans for a €471M investment in infrastructure to support commercial and residential growth, with the north docks expected to accommodate a fifth of the population by 2040.

O’Callaghan Properties Managing Director Brian O’Callaghan recently announced that the company would commence Phase 1 delivery of the apartments on Kennedy Quay. Overall, OCP controls 31 acres on the south docks, with its own delayed plans for over 2,000 apartments there and a further planning application set to follow for the nearby Gouldings site for 1,325 units.

To date, OCP has delivered the majority of 360K SF of offices at nearby Navigation Square and has planning for a further 450K SF at Kennedy Quay.

That said, amid the expanding Cork office pipeline, at the end of July and less than 12 months after Iconic Offices officially opened its first location outside Dublin, the flexible workspace provider announced it would close its 14K SF offices at Albert Quay, citing low occupancy levels.

It is the public sector that is driving demand in Cork. Expansion of the Health Service Executive’s Cork footprint contributed significantly to growth in the city’s office market in the first six months of 2023, according to Savills Ireland, as commercial rents stabilised despite vacancy rates remaining well above pre-pandemic levels.

In all, 13.7% of available space in the city was vacant in the six months to the end of June, down from 14.3% over the same period last year but well above pre-coronavirus levels when rates of 8%-10% were recorded in 2018 and 2019.

“Cork has become a more mature and competitive office hub and established itself as a market for a whole range of different sectors, including fintech,” Savills Ireland Director Isobel O'Regan said.

Headline rents are around €32-€34 per SF, though that will be more for newer schemes, with the quality of the product being delivered suitable for European headquarters, O'Regan added. C&W's Staunton said this was a significant discount to Dublin on office space of equivalent quality.

While O'Regan said residential supply remains a national issue, she also pointed to the wide catchment from which Cork can draw, with upgrades to the rail network for a number of key commuter towns also progressing.

"Cork now has a strong foundation, supported by a large student community and world-class R&D facilities," O'Regan said. "It's much easier for global corporates to look at Cork as a competitive alternative to Dublin now."

Meanwhile, availability in the Limerick/Shannon market has picked up slightly in the past six months, with the overall vacancy rate estimated at 10.3% for the first quarter by Cushman & Wakefield. Limerick vacancy rates are significantly lower than in the rest of the region and are just 2.6% in the city centre. 

C&W reported that office take-up in the Limerick/Shannon market experienced a “subdued first quarter” with a total of 23.5K SF leased in the period, down 69% from the same period in 2022. The largest deal in the first quarter was by Eli Lilly, which took almost 10K SF at Clive House in the National Technology Park.

The construction pipeline in Limerick is dominated by the nine-storey Bishop’s Quay mixed-use development, due for completion in early 2024. Once completed it will comprise nearly 81K SF of prime office space together with space for luxury accommodation and restaurant units.

“The office market in Limerick remains one where the supply-demand balance is tight and where demand is very focused on high-quality, Grade A stock," Cushman & Wakefield Divisional Director Ciara McCarthy said. "The mid-west region has remained resilient with overall employment levels slightly higher through last year.”

In Galway, the first quarter of 2023 saw a notable step up in occupier activity, with nearly 112K SF taken up across six deals, the second-largest quarterly take-up in the past five years. The largest deal in the quarter involved Galway City Council taking up 65K SF at Crown Square Phase 1. 

Foreign direct investment remains a key driver of occupier demand in the Galway area, and this has continued to grow, including Fidelity’s announcement in late 2022 that it was looking to hire a further 200 Galway-based technology roles. 

At the end of Q1, the vacancy rate stood at 7.2%, the lowest since Q3 2021 and well below the 9.4% average vacancy rate over the past year, which was partly due to completions at the first phase of the now-fully let Bonham Quay and at Phase 1 of the Crown Square development.

Regional markets are supported by the significant role IDA Ireland plays from a real estate perspective, as it is one of the largest commercial real estate landowners in the country with around 3,000 acres.

"It's one of the selling points that we have for regional development in that our companies are looking for office space, they're looking for manufacturing space, and they're looking for greenfield and utility-intensive sites," IDA Head of Regions, Property and Enterprise Development Denis Curran said. "Combined with the private sector and working with local authorities, our supply of advanced building units ensures an adequate supply and choice of commercial real estate."