Dublin office take-up soared 63 per cent last year to a total of 247,635sq m but the slowdown in the global technology sector “restricted the market” and threatens to weigh on rental growth this year, BNP Paribas Real Estate research has indicated.
The bank’s Dublin office market report for the fourth quarter of 2022 highlights the steady recovery in market activity since the initial Covid-19 shock in early 2020.
Leasing activity by businesses in most sectors of the economy had recovered to pre-pandemic levels by the end of 2021 and surged above those levels in 2022, the report shows.
Prime rents were stable at €673 per square metre annually last year, up 8.7 per cent on 2021 with global occupiers “heavily focused” on so-called best-in-class modern offices in the city centre and docklands.
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But the tech sector “is clearly the weak link” in the chain. IT firms only took up 18,324sq m of business space in the second half of last year, “accounting for just 11.7 per cent of all take-up compared with a run-rate of 49.5 per cent between 2017-2021″, BNP said.
As a result, overall take-up in 2022 remained well below the 2017-2021 average of 305,000sq m, it said.
This “pullback” reflects the “sharp slowdown in the global technology sector”, the report indicated, with high-profile employers like Meta, Google, Amazon and others announcing job cuts in recent months.
“With office demand stemming from the need to accommodate staff, these measures have inevitably been followed by global initiatives to rationalise business space,” BNP said. But despite the fact that Ireland has been relatively “insulated” from the worst of the cuts, “it is reasonable to expect that many ICT firms are reviewing their future business space needs and, reflecting this, some have already pulled office requirements and sought to assign surplus space”.
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Against this backdrop, BNP director of research John McCartney said 2023 was expected to be a more challenging year with vacancy rates likely to peak at about 15 per cent later in the year compared with 12.5 per cent last year.
“Remote working is causing office take-up to lag service sector employment growth,” he said. “In addition, the continued tech sector slowdown will drag on the quantity and quality of lettings. Increased subletting and ‘churn’ reduced the extent to which gross take-up fed through to an increase in tenanted space during 2022, and this trend will continue in 2023.”
However, BNP said that with relatively few new offices set to come on stream after 2023, the data should help investors maintain a positive medium- and long-term perspective.