The putting up for sale of two Celtic Tiger office blocks on Dublin’s Merrion Road at a deep discount belies the optimistic claim that the slump in the office market here will not be deep or long-lasting.
Just do the maths. Two landmark office buildings on the Elm Park campus are on sale at a price equivalent to €170 per sq ft. That is a 70 per cent mark down on the €672 per sq ft that the owners, US property fund Starwood, got in 2016 for another office building on the site.
It is hard to square a price drop of this magnitude with predictions from commercial property agents that the “downswing” in the office market will bottom out next year. The tech sector slowdown and the post-pandemic shift to remote working that have taken the wind out the market are not irreversible trends, but there is little evidence at this stage of a significant about-turn; and even less evidence that either will return to the levels seen before the pandemic.
There is much talk of a silver lining in the shape of office blocks being converted into residential accommodation but that would appear much more easily said that done. It is well worth doing where possible. But it is expensive and not all office buildings are suitable.
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What is clear is that someone is going to lose money, or already has. The question is who and how much and will it come back to bite the tax payer?
There is a risk of complacency stemming from the tighter regulation of Irish banks post 2007. Their direct exposure to the office market may be limited and manageable, but their indirect exposure is much harder to quantify.
To paraphrase Warren Buffet, we will only know who is swimming naked when the tide goes out.
The risk of a 2007-style contagion may seem low but rather than whistle past this particular potential graveyard the authorities would be advised to conduct a deep dive into the economic impact of a large and sustained fall in the value of offices.