The 5 Key Questions Facing Dublin Real Estate In 2024

With transaction volumes flatlining at €2.1B in 2023 as Dublin’s commercial real estate market caught the global jitters, investors and developers largely sat on their hands for 12 uncertain months.

The outlook for 2024 appears similarly unsure, but with the worst of technology companies' retreat from real estate apparently behind the city and few new developments on the books beyond those already under construction, a longer-term view of Dublin’s commercial real estate landscape improving should gradually emerge as the year plays out, experts say.

Against this backdrop, Bisnow looks at the five key questions facing Dublin’s commercial real estate market in 2024.

1. Health Check: How Is Corporate Dublin Going To Fare?

Investment bank Davy described 2023 as a year of resilience for the Irish mergers and acquisition market. While global M&A volumes were down circa 23%, Irish M&A volumes were down only 9% year-on-year, it said in a report, describing this as a “remarkably robust performance.” And that is set to continue.

“As we enter 2024, we believe the Irish M&A market will move into growth mode, as the rate environment shifts to a pro-growth, rate cutting cycle, with ECB rates expected to fall to 2.6% by year end 2024 (from 4% currently),” Davy said in a statement. “We therefore think 2024 will be a year of growth. We expect rate cuts rather than rate volatility to dominate the agenda and spur transaction activity in Ireland.” 

There were a total of 405 transactions in 2023, down 9.2% year-on-year, with 95 transactions in the fourth quarter, down 13.6% year-on-year. Transactions were 38% above the pre-pandemic average of 294.

The €19B merger of Smurfit Kappa and Westrock represented the largest deal in 2023. Tech and telecoms continued to be the most active sector in the Irish M&A market, representing a 22% market share. It has been the most active sector since 2013. 

2. What Next For Office Occupier Demand?

It was always envisaged that 2023 would be a challenging year, but the outlook for 2024 is more positive, Savills Office Agency Director Shane Duffy said.

“Surprisingly, take-up across the Dublin office market in 2023 will fall below the respective tallies of the Covid years 2020 and 2021. In fact, we have to go back to 2010 to find an annual take-up figure below the projected 1.3M SF expected in 2023,” Duffy said. “Coupled with an increase in the availability of sublet space, this has seen the vacancy rate for Dublin reach its highest level in almost 10 years.”

However, the outlook for 2024 is increasingly optimistic, he said.

“Headline rents have remained robust, especially around the St. Stephen's Green hinterland, where demand is particularly strong. Office-based employment continues to rise, with greater focus on employees to spend more time in the office,” he said. “Anecdotally, the number of occupiers starting to increase their footprint is starting to rise, and their focus is centred on better-quality workspace in central locations for returning employees. The fall in inflation has led to greater transparency on fit-out costs, encouraging more activity.” 

Savills is tracking a large number of inquiries in excess of 50K SF, totalling almost 3M SF of demand, expected to transact in 2024-2025. EY, Deloitte, BNY Mellon, Eversheds Sutherland and Mason Hayes & Curran are some of the larger known companies with requirements.

Furthermore, Savills expects a number of state and semistate agencies to relocate from older buildings into new environmental, social and corporate governance-compliant alternatives. It estimated that there are over 1.2M SF of office lettings reserved and likely to transact in 2024. There was only one letting above 50K SF in 2023, down from 12 in 2022. There are already three lettings of more than 50K SF in legals for 2024, with more expected.

However, Duffy also said tenant fit-out costs remain high and pointed out that a U.S. election year generally sees reduced activity as occupiers await any increase in repatriation sentiment.

“In tandem, elections expected in Ireland and the UK will have some bearing on economic activity generally,” he said.

3. Will Investment Kick-Start This Year?

The government faces the challenge of an economy operating at full capacity across most sectors and infrastructure, particularly housing and transport services, which are inadequate to meet the population growth and pace of activity across the economy, according to Knight Frank Ireland Chief Economist and Head of Research Joan Henry.

“Faced with a rolling set of challenges, largely triggered by the sharper-than-expected increase in interest rates, cautious demand coupled with a low level of prime assets available to the market, has seen sales activity for office assets almost grind to a halt,” she said. “Investment in Dublin’s office market in 2023 was one of the lowest in a decade and mirrors activity in the other main European city office markets.” 

That said, global corporate occupiers have been able to use the time to fully assess their requirements. New space that meets the best sustainable credentials, offering access to transport links and smart technology, will lead occupier and investor preferences. And employment, even allowing for job losses in the tech sector in 2023, remains higher than ever before and is a strong underlying positive in the Dublin market, Henry added.

She said that with no prime office assets traded in the Dublin market in 2023, prime yield estimates are challenging but reside between 5% and 5.25%. Prime rents ended the year at €62.50 per SF and are expected to remain flat through 2024, with some upside potential toward the end of the year, she added.

“The anomaly of a one-off spike in the amount of new space due for completion at the same time as a number of large spaces being available on the grey market will limit upside in the first part of the year,” Henry said. “Costs and an expected increase in demand will temper downward pressure. The medium-term supply pipeline — for example, into 2026 — is very low, with 97% of space due already let, causing a potential future problem.”

4. Will Dublin Punch Above Its Weight?

As a relatively small city, Dublin punches above its weight, with a consistent ranking of 13th among 30 European cities for investment and development potential over the last three years, according to ULI and PwC's Emerging Trends in Real Estate Europe report, which polls more than 1,000 real estate professionals across the continent.

Ireland’s economy is seen as relatively strong, particularly in terms of its fiscal position, domestic demand and employment, which should support housing development in the future.      

“Dublin continues to offer great prospects for real estate investment and development potential,” PwC Ireland Real Estate Leader Joanne Kelly said. “Albeit the global uncertainties, we have an economy that continues to show robust domestic demand, with near-full employment and continued foreign direct investment inflows.

“There is some hope that the stars are aligning — namely, clarity on inflation, interest rates and valuations — to facilitate greater transaction activity in 2024.”

5. Can The Industry Deliver On Residential Demand?

Lender, investor and developer appetite for residential remains strong, according to consultancy Deloitte, although it remains a “difficult environment” to navigate.

However, it said that sentiment has been lifted by the level of state support. On the supply side, schemes such Project Tosaigh, Croí Cónaithe and Secure Tenancy Affordable Rental Investment set out to activate and incentivise the delivery of cost rental and affordable purchase units.

“Despite what many may have expected in residential, demand remains resilient, evidenced by increasing levels of mortgage approvals for first-time buyers,” Deloitte Ireland Head of Research Kate English said. “In Ireland, interest rate movements, although not pleasant, have been lower than many other EU countries.

“Similarly, in contrast to expectation, the delivery pipeline has improved. Government policy and support has created this change and provides hope for the year ahead. A prime example of government intervention making a difference was the announcement by the LDA before the end of 2023, that final terms were being agreed in Horgan’s Quay, Cork, which would see over 300 apartments delivered to the city through Project Tosaigh. Without this partnership and policy, these units would not be delivered.”  

However, English warned that challenges remain.

“I remain cautious about the outlook for medium- and long-term delivery,” she said. “The caution stems from planning and zoning issues created by the current National Planning Framework Review and the Housing Need Demand Assessment, with the reviews of both being critical outputs expected by government this year. Similarly, wider infrastructure problems are impacting the pipeline, with Galway and the new outer ring road being an example.”

Deloitte said it expects an uplift in completions in 2024 and anticipates that affordable purchase and affordable rental development will dominate the sector, bolstered by government support and incentives.