Diminishing Supply Driving Office Occupiers To Act Quickly, Fine Grain Says

He pointed to announcements over recent months about new demand in the Dublin city centre market, particularly around the Grade A and A-plus provision, with Workday and Vodafone the latest major companies to confirm or seek new space.

“That's a really good bellwether for the occupier market. Demand is there,” Lennon said. “I think what we're seeing is that businesses are starting to settle into a kind of a rhythm, a post-Covid rhythm, and an understanding of what their space requirements are, and that's enabling them to make decisions.”

This is being expedited by the fact little new supply is scheduled to come online after 2024, and Lennon pointed out that even when occupiers are relocating, the older buildings they are vacating will require substantial redevelopment or repositioning and will take time to rejoin the available stock. 

“That breeds a good story from an investment perspective but also breeds a story from an occupier perspective that if you don't move now, you might struggle to get the right space or the space that you want,” Lennon added, with the focus on Grade A space borne out by CBRE's Dublin second-quarter report, which says there is an ongoing “flight to core.”

Fine Grain has about 1.3M SF of office space across 19 buildings in Dublin, Cork, Galway, Limerick, Shannon and Athlone, with a mix of individual buildings and campuses, including a large innovation campus in Shannon and another in Limerick of about 400K SF each.

“We’re continuing to grow,” Lennon said. “We purchased Waterside at Citywest Business Campus in Dublin last year, and we're actively looking for opportunities that fit our criteria in terms of being able to add value. Whether that's in Dublin or regionally, we're agnostic about that. It’s about the right asset.

“We're big believers in workplace communities, bringing client tenants together in buildings and workplace communities. But it doesn't have to be in a campus. It could be a single building with multiple occupants.”

Fine Grain’s Dublin-based assets are primarily in the city’s western suburbs, and Lennon said that with the onset of working from home, easily commutable properties remain in demand, with little new space being built because the finances do not make it profitable.

“The other uncertainty is what that secondary supply is going to look like and how it is going to be repositioned or redeveloped. What view are the planners going to take on knocking down buildings and building new ones versus repositioning existing ones,” Lennon said.

In terms of demand, Lennon said a mix of technology companies, financial services and some indigenous growth businesses have been looking for space. But rather than sector trends, greater certainty over workspace needs has helped the occupier side lead the market out.

“After that, we'll see what happens with values and we'll see what happens with interest rates and yields on the back of hopefully continued decent occupier demand,” Lennon said. “The second quarter was obviously very strong, but then the first quarter was really bad. So the first half was average overall.”

Environmental, social and corporate governance requirements are also driving occupier needs, Lennon added, as tenants want to know more about carbon usage and energy ratings, even for secondary buildings.

“These have become much more important,” Lennon said. “And if you've got someone coming in new into a space, they certainly want to know about that.”