- Strongest office take-up for two-and-a-half years – 86,250 sq m taken
- This breaks a 5-quarter run of below average activity
- Remote working headwind beginning to ease
- Lettings cycle appears to have passed rock-bottom, despite tech firms remaining less active
- Leasing quality improves – New entrants and expansions account for a higher share of activity
- Nearly 140,000 sq m of new supply added in H1
- Strengthening demand unable to keep-up with the supply surge – vacancy rises to 15.2%
- Supply pipeline will drive vacancy to 16.5% – 17% by end-2025
The latest office market report by BNP Paribas Real Estate Ireland (BNPPRE) reveals a strong improvement in demand for Dublin business space.
86,250 sq m of office accommodation was taken-up in Q2. This is the highest figure for two-and-a-half years, and it surpasses the 10-year quarterly average of 60,000 sq m for the first time in six quarters.
Furthermore, the quality of lettings is improving, with new entrants and expansions accounting for a higher share of take-up over the last year. This contributes more to overall office consumption than tenants moving within the market, from one building to another.
Keith O’Neill, Executive Director and Head of Office Agency at BNPPRE says the rebound in activity reflects improved occupier confidence, but also an easing of the remote-working headwind;
“June’s interest rate cut and a general strengthening of the economy have led to a noticeable improvement in sentiment. But hybrid-workers are also coming into the office more often which, as well as driving office demand, is creating more vibrancy around town.”
Analysing CSO and Eurostat data the report finds that Ireland has been the EU’s most enthusiastic adopter of remote working. However, while the proportion of employees working remotely has remained steady at 34% since Q3 2022, those that are doing so are gradually spending more time in the office.
According to BNPPRE Director of Research John McCartney, demand conditions are as positive as could be expected given the relative inactivity of tech firms. Instead, the bigger challenge comes from the supply-side of the market;
“Nearly 140,000 sq m of new stock has been added in the first half of 2024 and a further 17 buildings, incorporating 250,000 sq m, are scheduled to complete before the end of next year. This is a lot of space for a small market like Dublin to digest and vacancy will therefore rise further, despite the leasing cycle having probably now passed rock-bottom.”
BNPPRE says that rising vacancy is inevitably impacting on the market. While prime rents have held steady at €673 per sq m per annum over the last two years, inflation has eroded 8.5% of the real value. Further hidden signs of a tenants’ market include shortening lease terms, earlier break options and increasing rent free periods at the start of leases.
While these conditions are likely to persist for the time being, McCartney notes that the construction pipeline falls away sharply after 2025, paving the way for vacancy to recede again at that point.
