New offices drive demand in Dublin as investors and occupiers shy away from older stock

Last year was an extraordinary year for Dublin’s office market, with take-up coming in above the long-term average, at a total of 2.64 million sq ft despite multiple disruptions and concerns, particularly in relation to global funding costs and accessibility.

Demand for new space in the city centre dominated activity as occupier preference for space with the highest sustainable credentials and proximity to transport links comes to the fore. Offices located in Dublin 1 and 2 represented 70 per cent per cent of all the deals signed in 2022, with activity in the city’s north docklands particularly strong (25 per cent of total activity in 2022). While there were 37 deals signed in the final quarter, the top 10 made up 75 per cent of the total as a number of larger deals returned to the market.

Deals of note in 2022 included ServiceNow’s decision to take 88,000sq ft at 60 Dawson in Dublin 2, A&L Goodbody’s decision to take 62,600sq ft at North Wall Quay, Dublin 1 and SMBC Aviation Capital’s decision to take 135,000sq ft at Fitzwilliam 28, Dublin 2. The largest deal of the year was completed in the final quarter, with Citigroup committing to a large new building in Dublin’s north docklands, which is due to complete in 2026.

Prime rents ended the year at €70 per sq ft. An increase in the amount of space that has come to the “grey” market will give some occupiers more choice in 2023 and, combined with new space due to complete, is expected to result in a softening in prime rents, to €65 per sq ft by mid-year. Key factors such as a fundamentally higher funding cost environment (which is now set to remain in place), a higher cost base for construction, a dip in the office supply pipeline in 2024 and occupier preference for the best space, is expected to put a floor on rents and see a return to rental growth towards the end of 2023.

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While the overall Dublin market vacancy rate remains above 10 per cent as we start 2023 (and is expected to be more volatile in 2023 as grey market space is absorbed into the market), space available with Ber energy ratings of B and below will become less and less attractive to occupiers.

The vacancy level that more accurately reflects the space that investors and occupiers are interested in is closer to 6 per cent.

Supported by the continued performance of key sectors driving wider economic activity, Ireland remains well ahead of its euro zone counterparts, largely driven by the volume of jobs created over the 2019-2022 period, which has delivered the highest tax revenue on record.

International investors researching the Dublin office market are well aware of Ireland’s strong labour market, and concerns about the impact of tech sector employment correction are being taken against this wider backdrop. Ireland is set to continue to remain of particular interest to international occupiers and investors, and while 2023 begins with a difficult global backdrop, the domestic environment is as well positioned as possible to allow for continued strong occupier activity in 2023. Professional services companies are expected to lead demand in 2023.

Joan Henry is chief economist and head of research at Knight Frank Ireland