The increasing shift to a clear preference for ESG (environmental, social, and governance) space underscores the importance occupiers place on being environmentally conscious and acquiring sustainable properties, presenting an increasingly compelling opportunity for both investors and occupiers.
Demand among occupiers for sustainable and amenity-rich buildings has strengthened considerably in recent years, and has accelerated in 2024.
Total office occupier take-up for the year to date has reached 1.679 million sq ft – in excess of the total signed throughout 2023.
Of the total space taken year to date, 66 per cent had ESG credentials. In the city centre market, occupier preference for space with ESG credentials has become even more pronounced, making up 72 per cent of total city centre office space taken since January.
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Overall, take-up is being driven by a number of high-value-adding sectors (professional services; technology, media and entertainment or TMT; and financial services) which continue to experience strong employment growth. Companies in these sectors are aligning their occupier requirements to their strategic objectives, with real estate ESG criteria increasingly at the top of the agenda. Coupled with a tight labour market, staff retention and the provision of workplace amenities and services further compound this trend.
The professional services sector has been very active, with EY’s decision to take in excess of 130,000sq ft of space at Two Wilton Park, in Dublin 2, representing the largest deal that completed in the third quarter. The space at Wilton Park, that will be occupied by EY for its new headquarter offices, has LEED (leadership in energy and environmental design) Platinum certification.
The tech sector has also been active in 2024, taking 25 per cent of overall space. Stripe’s decision to occupy 156,000sq ft at One Wilton Park (LEED Platinum space) was the largest deal in that sector.
BNY Mellon has taken 79,000sq ft of LEED Platinum space at the Shipping Office in Dublin 2, which was the largest deal in the financial services sector.
The Health Service Executive’s decision to take 182,340sq ft of space at the Seamark Building in Dublin 4 was the largest deal of the year to date and, once again, involved space with LEED Platinum certification.
Knight Frank expects total take-up for 2024 to reach between two million and 2.2 million sq ft, with a strong reserved pipeline in place coming into the final quarter of the year. Much of the reserved space is for new ESG-certified space (such as Workday’s decision to agree to take just over 400,000sq ft of LEED Platinum space at College Square).
The increasing shift to a clear preference for ESG space underscores the importance occupiers place on being environmentally conscious and acquiring sustainable properties, presenting an increasingly compelling opportunity for both investors and occupiers.
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This shift is expected to accelerate further over the coming quarters and to become an embedded feature when occupiers are undertaking their office searches. At this point in the market cycle this is a demand-led dynamic, but over the next 12 months it will become supply-led.
This is becoming evident from movements in the components that make up the vacancy rate. Deals for new space, along with the absorption of grey space with ESG credentials, are having a positive impact on the overall market vacancy rate, which fell to 15.1 per cent at the end of Q3, down from 15.9 per cent at the end of Q2.
The overall vacancy rate has now peaked for this cycle (in Q2), which we forecast that it would in 2024, and while it may increase slightly from the Q3 level by year end, as new space which is due to complete and that is not pre-let adds to the overall space available, it will not go back up to where it was earlier in the year. The vacancy rate will be on a clear downward trajectory in 2025.
Vacancy for ESG-accredited space in the city centre continues to fall even further, particularly in Dublin 2 which we forecast will reach a low single-digit vacancy rate by the middle of 2025.
What of the older space?
Given the high proportion of demand that is transacting for ESG space, the pool of potential demand for the rest of the office space is shrinking and this will continue to be the case. Occupiers with smaller-deal size requirements, and also those looking for shorter terms, will still have an interest in non-ESG-accredited space, in the short term. As these companies either expand or consolidate their business strategies to include ESG considerations, they too are expected to become active in searches for ESG space with more amenities.
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The impact of these market dynamics is that prime rents have remained steady throughout 2024 and will move up in 2025, with more significant increases expected in 2026.
Beyond 2026, given current market dynamics, supply constraints will severely limit the ESG options for occupiers, not only putting upward pressure on rents, but running the risk of leaving the Dublin market in an uncompetitive position versus other European and UK city markets.
Joan Henry is chief economist and director of research with Knight Frank Ireland
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