Significant increases in employment over the last two years, particularly in professional and financial services as well as the technology, media and telecom (TMT) sector, along with the lifting of Covid-19 restrictions at the beginning of the year, resulted in a strong recovery in occupier activity, with take-up for 2022 on course to reach 2.5 million square feet – equalling the market’s 10-year average.
Demand for new space in city-centre locations led the way in 2022 as occupiers increasingly recognised the need to meet ESG targets and to create best-in-class workplace environments to attract and retain talent. However, there was a shortage of such space on the market, with buildings of this nature, particularly in prime locations in Dublin 2, experiencing strong rental upside, commanding rents in the region of €70 per square foot for the very best space.
It is likely that we will see some moderation in demand in 2023. The “traditional” TMT sector, which rapidly expanded its headcount and real estate portfolio in Dublin in recent years, appears to be scaling back its requirements in response to the fall-off in consumer spending and online advertising revenue. Despite this, we still expect some of the newer TMT companies to remain active next year.
In addition, the professional and financial services sectors had one of their strongest years on record in 2022 with some large requirements transacting, including A&L Goodbody’s taking of 155,000sq ft at 25 North Wall Quay, Goodbody Stockbrokers’ leasing of 60,000sq ft at 12 Dawson Street as well as Dentons, Davidson Kempner and Aircastle, who signed for a combined 49,000sq ft at 20 Kildare Street. Demand from these sectors is anticipated to remain robust in 2023.
In terms of supply, there were considerable delays with the delivery of space between 2020-2022, with some of those delayed schemes due to come to the market in 2023 – 2.1 million square foot of space will be delivered in the city centre, of which 31 per cent is pre-let. In addition to this, there are a number of large opportunities coming to the market for sublet or assignment; LinkedIn, for example, have announced their intention to sublet or assign 270,000sq ft at 2 and 3 Wilton Park. We anticipate that this type of short-term, high-quality, fully fitted space will be snapped up pretty quickly as they will provide attractive options for companies who have requirements in 2023 but who are unsure about committing to a long-term lease in the current macroeconomic environment.
Nevertheless, the combination of more cautious demand and additional supply is expected to place some downward pressure on prime rents, which are likely to slip to €65 per square foot throughout 2023. It should be remembered, however, that this is still somewhat higher than the €62.50 per square foot that prevailed prior to Covid-19. This dip in prime rents is also likely to be short-lived. Finance for speculative development will be particularly constrained in 2023, which will drastically curtail new completions in 2024 and 2025, reigniting upward pressure on prime rents as supply options reduce.
Declan O’Reilly is a director of office agency and tenant representation at Knight Frank
