Q1 Completions Surge Triggers Rise in Dublin Office Vacancy

  • Q1 office completions exceeded the entire amount for 2023
  • Supply surge meets weak demand – leasing at 3-year low
  • Strong pipeline supply means rising vacancy until 2025
  • Tenants’ market for now, with rents and lease terms under pressure
  • Positive signs emerging;  Remote workers spending fewer days at home and reserved space rises by 25% in Q1
  • Office re-purposing projects emerging – but mostly to hotels, education and medical rather than residential uses

A new report by BNP Paribas Real Estate Ireland (BNPPRE) confirms that the predicted surge in Dublin office space materialised in Q1, with almost 84,000 sq m completed – more than in the whole of 2023.   At the same time tenants leased just 16,310 sq m of purpose-built offices – the lowest amount in three years.  This combination of strong supply and weak demand propelled vacancy from 13.1% in December to 14.5% in March.

According to John McCartney, Research Director at BNPPRE, this has created a tenants’ market;

“Rising vacancy has given tenants choice and more leverage in their rent negotiations with landlords.  Prime headline rents have remained at €670 per sq m per annum since June 2022.  But inflation has deducted 7.3% from the value of money since then so, in real terms, rents are under pressure even at the top-end of the market.   Moreover, lease terms are getting shorter, break options are coming earlier and rent-free periods are creeping up – all signs that tenants have the whip-hand.”

Looking ahead, BNPPRE says a strong pipeline of supply will cause vacancy to keep rising until late 2025.   However, there are signs that demand is improving.  Reserved space, which is a strong leading indicator of next-quarter take-up, rose by 25% in Q1.  And, in the longer term, some of the structural challenges to office demand appear to be easing.

According to Keith O’Neill, Director and Head of Office Agency at BNPPRE;

“Remote working has obviously impacted the market.  However CSO data show that, while the number of people working remotely has stabilised, those that are doing so are spending less time at home and more in the office.”

O’Neill adds that the post-Covid spike in sub-letting appears to have passed;

“After Covid many firms sought to ‘right-size’ by assigning / sub-leasing their surplus office space.  This added more supply just as demand was down, putting pressure on the market. However, occupiers that were going to sub-let space have already done so, and some are now actually withdrawing their ‘grey space’.”

While these green shoots will help the market over time, BNPPRE says that conditions will continue to favour tenants for the next 18 months;

“Even with improving demand conditions, it is unlikely that the market can fully absorb all the new supply coming onstream over the next 18 months, meaning vacancy is likely to peak at 16.5% – 17% by late 2025.”

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