Dublin office market faces glut of completions

A rise in lettings from professional services firms and a rebound from Covid-19 will not be enough to offset a glut of new office space coming to the Dublin market in 2022, according to a new report.

The latest office report covering the last quarter of 2021 from BNP Paribas Real Estate Ireland said vacancy rates could hit 10% as 2.6 million square feet of office space are set to be completed this year, projects held back by the coronavirus pandemic finally ending.

The report noted that about 4.4 million square feet were under construction in the downtown core, with an additional 237,000 square feet in the city’s suburbs.

Prime rents have yet to return to their pre-Covid peak, at €57.85 per square foot. However, the highest realized rent in the city center was 2 Windmill Lane, Dublin 2, which was let at €62.54 by SF. Rents are not expected to return to pre-Covid levels until 2024, which BNPPRE says “will provide opportunities for tenants”.

BNPPRE research director John McCartney said rentals would need to reach around 3.2 million per SF per year to absorb all the extra stock. “Due to the strong construction pipeline, we expect Dublin’s office stock to grow by over 2.15 million square feet in 2022,” he said.

“Around 1.7 million square feet of office space was let in Dublin in 2021. Despite the improving trend, occupants’ caution about returning to offices means it will be difficult to double this figure in 2022. As a result, we do not expect a tightening vacancy this year.”

The report showed Dublin office rentals in the fourth quarter were up 245% year-on-year with 979K SF rented, but this increase was due to abnormally low rental levels in 2020 as the pandemic was setting up.

In terms of market share, telecommunications and technology customers have seen the proportion of leases fall from an average of 55% between 2017-2020 to just over a third in 2021, with BNPPRE saying that restrictions on travel meant less subscription from global customers, but also “big tech companies are taking the time to work on their longer-term business strategies.”

Jose C. Birney