Significant increase in office leasing activity in second quarter

While the volume of office-leasing activity showed a significant improvement in the second quarter with about 200,000sq ft of new lettings signed according to figures compiled separately by CBRE and JLL, the impact of Covid-19 and its potential implications for the future of the traditional office model continues to loom large in the minds of corporate occupiers.

But while the uncertainty being caused by the pandemic persists, deals continue to be done for space both in Dublin’s central business district and beyond. Some 33 lettings of note were signed in the second quarter, albeit for much-smaller spaces than those transactions that had been agreed in the period leading up to the unwelcome arrival of Covid-19.

Included in the deals signed in the last three months were: the letting of the MKN Property Group's newly-developed 6 Pembroke Row (2,481sq m/26,716sq ft) to the OPW; the letting by Dropbox by way of sub-lease of 2,323sq m (25,000sq ft) on the 6th floor at One Park Place in Dublin 2 to 2K Games; the 1,751sq m (18,847sq ft) let to Philip Lee Solicitors at Connaught House in Dublin 4; the 1,368sq m (14,725sq m) let to Coca-Cola subsidiary European Refreshments at Irish Life's 24/26 City Quay in Dublin 2; the letting of 1,071sq m (11,528sq ft) to the HSE at One Kilmainham Square in Dublin 8, and the letting of 929sq m (9,999sq ft) to Doosan Bobcat at Swords Business Campus in the city's north suburbs.

Lockdown measures

Commenting on the latest figures, Marie Hunt, head of research at CBRE Ireland, said: “The gradual easing of lockdown measures in recent weeks has been the catalyst for renewed activity in the commercial property market, and this is something that is in evidence in the office sector with further strengthening in occupier demand quarter-on-quarter. Demand is now running at close to 300,000sq m (3,229,173sq ft) – up almost one-third in the last six months alone. However, occupiers are under no immediate pressure to make location or expansion decisions. The reality is that until such time as the majority of office workers are back in their offices, occupiers will not be in a position to gauge the extent to which hybrid working will impact their real-estate requirements going forward. In addition, many occupiers are not in a position to travel to inspect buildings in the current environment”.

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Hannah Dwyer, head of research at JLL Ireland, says: “It is positive to see an increase in activity in the second quarter after a particularly quiet first quarter. It signals the beginning of a return to normality for the Dublin office market, as back-to-work strategies are starting to place an emphasis on office space requirements again. There has been an increase in inquiries and inspections of properties by occupiers looking for office space, and this is expected to further increase as international travel restrictions ease in July. In addition, the news of numerous job announcements by large corporates will ultimately translate into office requirements and people working back in office buildings. Our conversations with office occupiers are a signalling a return to office space for most companies in the next six months, with most suggesting a phased return from September onwards.”

Reserved

Ms Dwyer added: “In addition to the deals that closed in the last three months, it is encouraging to see that over 700,000 sq ft of space is reserved and likely to close in the next six months which will further boost year-end take-up. That said, 2021 year-end volumes are expected to remain below long-term averages, with approximately 1 million sq ft of deals expected by year-end.”

According to CBRE, prime headline office rents in Dublin are currently in the order of €618.70 per sq m (€57.50 per sq ft), having declined 11.5 per cent from peak to trough in this cycle. CBRE believe that rents will bottom out at this level with rental inflation on the horizon again from 2022 onwards. Prime office yields meanwhile are stable at 4 per cent but with a number of office investments currently being offered for sale, it remains to be seen if yields for core product will tighten over the coming months.