Q3 Take-Up Down Sharply
Average Deal Size Plunges
‘Less-but-Better’ Strategies Covering Cost of ‘Green’ Space
Tech Sector Remains Dormant
Vacancy to Peak in 2024
Mild Downturn Coming, but Recovery Could Be Slower
According to a new report by BNP Paribas Real Estate Ireland (BNPPRE), Dublin’s office slowdown continued in Q3 with occupiers taking less than 29,000 sq m of space – a 63% drop compared with Q3 2022. This was mainly attributable to the average deal size plunging from 1,510 to 655 sq m.
John McCartney, Director of Research at BNPPRE, says two factors are driving the trend towards smaller deals.
“Firstly demand has shifted away from Tech firms which traditionally have bigger office requirements. Tech accounted for just 8.4% of take-up between July and September – its lowest share since quarterly records began. Secondly, occupiers are taking advantage of remote working to reduce their office space.”
However, while lettings are getting smaller, occupier preferences have swung towards better buildings. Keith O’Neill, Head of Office Agency at BNPPRE, says 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. This is causing firms to ensure that their buildings provide the most welcoming, flexible and efficient working environment possible for staff when they are onsite.”
Sustainability objectives are also driving the ‘less-but-better’ dynamic. Because rents are significantly higher for green buildings, BNPPRE says some organisations are funding their transition to low carbon premises by reducing their floorspace. 12.3% of this year’s office take-up has been accounted for by organisations which are downsizing, and 72% of the space they have taken has had a BER rating of A.
Looking ahead, John McCartney says office vacancy has now risen to 12.5%, and is set 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. However, the construction pipeline has never gotten too far ahead of demand, so peak vacancy is likely to be quite manageable by historical standards. Nonetheless, although this will be a relatively shallow downswing, it might take longer to come out of in the upswing because remote working has weakened the relationship between jobs growth and office demand.”