A slowdown in the multinational technology sector coupled with the popularity of working from home have “dragged” on Dublin office leasing in the first half of the year despite the Republic creating desk jobs at twice the pace of the European Union average.
New research from BNP Paribas Real Estate Ireland indicates that Irish workers have been the biggest adopters of remote working in the 27-country bloc. Data from EU statistics agency Eurostat showed that the proportion of employees in the Republic who said they sometimes or usually work from home jumped from 19.89 per cent in 2019 to 36.2 per cent, the biggest percentage point increase of any EU country.
This has allowed employers to decrease their physical footprint, according to the bank’s July office report, subtracting from business space demand.
The other main factor dragging on leasing activity is the downturn in the multinational tech sector. According to BNP, global IT companies accounted for more than half of leased office space between 2017 and 2020, but have been “inactive” in the market, accounting for just 12.6 per cent of Dublin office space take-up in the second quarter.
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Overall, just 65,853sq m of business space was leased in the first six months of 2023, 27 per cent down on the first half of 2022 and almost one-third below the 15-year average.
However, the decline in leasing was partially offset by strong demand from the traditional financial sector and professional services, according to Keith O’Neill, head of office agency at BNP Paribas Real Estate. “There were actually more deals done in the first half of this year than in the first half of 2022 but, reflecting the shift in focus away from tech, the deals are smaller.”
With about 200,000sq m of new office blocks expected to the be delivered this year, vacancy rates are expected to tick up towards the end of the year, said John McCartney, director of research at BNP Paribas Real Estate.
Mr McCartney said: “Take-up for the full year is likely to be 150,000sq m to 170,000sq m. This will not be sufficient to absorb the net additional space that is delivered. Therefore vacancy will kick up towards 15 per cent by year-end. This is likely to put pressure on rents, even at the prime end of the market.”
However, he said the construction pipeline would tighten in 2024, which will “see vacancy peaking at fairly manageable levels this year or early next year before beginning to retreat again”.
Writing in The Irish Times last week, Kenneth Rouse, managing director and head of capital markets at BNP Paribas Real Estate Ireland, said investors had lost some of their appetite for the capital given the “inherent” risks of falling occupancy levels and rising interest rates.
“The market dynamic has switched very much from a seller’s market to a buyer’s market,” he said. “With base interest rates unlikely to ever be sub-2 per cent again in this author’s lifetime, something has to give and until it does we will continue to see subdued trading in this once reliable and buoyant subsector.”
