Dublin office vacancy rate hovers close to 15% as cost pressures bite

As we predicted this time last year, 2023 was a difficult year for the Dublin office market. Cyclical factors, characterised by rising cost pressures as a result of higher inflation and interest rates, and structural shifts, as companies continue to recalibrate their workplace strategies, slowed decision making. Just 1.3-1.5 million sq ft will likely transact in total this year, roughly half of the 2.6 million sq ft that signed in 2022.

There was strong demand from the professional services, finance and State sectors – examples include the National Transport Authority’s decision to take 79,600sq ft at Haymarket House and Jacob’s letting of 30,500sq ft at Termini. Knight Frank was involved in both transactions. The TMT (technology, media & entertainment, and telecommunications) sector, however, was a more mixed picture – smaller companies were active, but the larger names were particularly impacted by the aforementioned cyclical and structural headwinds, contributing significantly to the additional 1.3 million sq ft that was added to the subletting or “grey market”.

When combined with the 1.1 million sq ft of speculative new-build space that was delivered, it is little wonder that the vacancy rate is now approaching the 15 per cent mark, up from 10.5 per cent since the end of last year. Cautious demand at a time of increased supply has seen prime rents slip back from the €70.00 per sq ft observed at the end of 2022 to €62.50-€65.00 per sq ft currently. Enhanced incentives and rent-free terms however are maintaining a floor under prime rents close to this level.

Looking ahead to 2024 and beyond, there are reasons to be positive. A growing number of companies are adjusting their hybrid policies in favour of greater office attendance by issuing return-to-office mandates. TikTok’s Dublin headquarters made headlines when it was reported that they were tracking employee compliance with a minimum requirement of spending three days in the office. Other companies such as Amazon, Meta, JP Morgan, Lloyds and Citigroup are following a similar course. This is having a positive impact on active demand which has been increasing throughout the year. We are currently tracking over 2 million sq ft of requirements and some large mandates ranging from 50,000 to 200,000sq ft. This will also result in some grey space being removed from the market as companies re-examine their requirements and portfolios.

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Companies of scale will continue to show a clear preference for the best space – new, well-located city centre or suburban buildings that meet the highest environmental social and governance (ESG) requirements and offer excellent amenities. This product is already much tighter than the headline vacancy rate would suggest – if available space without LEED credentials was excluded, the vacancy rate would fall to mid-single digits. Valuers and financiers really need to become more micro in their analyses of the market and look deeper into specification and location when making calls on individual projects.

The availability of the best space will tighten further over the next three years as speculative development is restricted by higher build and financing costs – 1.1 million sq ft of speculative new-build space will be delivered in 2024, while 693,000sq ft will be completed in 2025. There is currently no speculative new-build space due for delivery in 2026. This is likely to place upward pressure on prime rents.

Companies with lease events over the next three years will face a conundrum in that they will find themselves searching for space in much tighter market conditions. Acting quickly will be essential, with smaller pre-let deals likely to become more common. In conclusion, we believe 2024 will be a more positive year characterised by increased take-up and the beginning of a gradual stabilisation of vacancy and rental levels.

• Declan O’Reilly is director of offices at Knight Frank