The current consensus amongst office brokers in Dublin postulates that leasing activity in Dublin hit rock bottom in the initial quarter, and the surge in operations seen in the second quarter marks a pivotal juncture. I concur with such a sentiment. Nonetheless, enhanced occupancy is merely the initial step, with a long road ahead before the peak of vacancies can be observed and full market recovery declared.
The preceding year was extremely sluggish for office leasing in Dublin, akin to the pace witnessed during the international financial crisis. This sluggishness exacerbated further during the initial quarter of the present year, with a mere 16,300sq m uptake, equating to just a quarter of the long-term norm. Amidst this stagnant market, brokers wondered about the ramifications of working from home and a deceleration in worldwide tech leasing, resulting in a dismal mood.
Nevertheless, the period between April and June saw a revitalisation, with an uptake of 86,250sq m of space, making the second quarter the busiest in the last four years. Understandably, this has lifted the spirits and fostered rather optimistic discussions.
Certain analysts have highlighted one specific deal as an indication of increasingly promising trends. On the final working day of June, the American-Irish financial technology company Stripe leased One Wilton Park, a superior 14,500sq m office in Dublin 2. Although this transaction embodies substantial positives, it also lays bare the hurdles yet to be overcome in the market.
The first LinkedIn pre-let property among the four buildings in Wilton Park prior to the Covid-19 pandemic was Number One. Regrettably, by the time these offices were constructed, the pandemic along with a worldwide tech downturn, had significantly transformed the landscape. Finding itself suddenly overburdened with available space, LinkedIn sought brokers to reassign its surplus area. Essentially, this required finding alternate occupants to fill the remaining lease period. This raises questions about the future of office construction in Dublin, suggesting a complete halt might be imminent.
Throughout June and July, One Wilton Park and a portion of LinkedIn’s workspace were transferred to Stripe and EY respectively, leading to numerous favourable outcomes. LinkedIn managed to streamline its office facilities, agents showcased their proficiency with the procurement of high-quality incumbent tenants, while Stripe and EY secured superior space in a stunning canal-side complex. This vibrant commercial sphere is the fruition of landlord IPUT’s vision, who has been accumulating the Wilton Park property since 1982.
However, these developments present a mixed picture for the broader market. On a promising note, the expansive movements of both Stripe and EY are indicative of Ireland’s flourishing sectors, suggesting a promising outlook for office space demand. Contrastingly, the deals simultaneously illustrate lingering issues. For instance, they highlight increased levels of lease delegation and sub-leasing; after the global pandemic many businesses were left with surplus office space they tried to get rid of, leading to a surge in delegated/sub-let space, escalating from 10% to 38% in Q1 2023.
Slowly, this excess of what’s termed as “grey” space is being processed, but even so, delegated/sub-leasing transactions, as exemplified by the Stripe deal, were still responsible for a fifth of the Q2 capture. Furthermore, with additions from EY and Addleshaw Goddard Law Firm in Q3, the ‘grey’ space remains a persistent element in the market. Notably, while these re-assignments and sub-lets may augment capture rates, they don’t decrease the vacant space available.
An additional concern is Stripe, who are merely relocating within the market. The firm currently occupies a space on Grand Canal Street’s The One Building. Unless Stripe’s current office space is rapidly reutilised, their Wilton Park deal could indirectly raise market vacancy levels, an impactful point that’s been frequently missed in commentary. This isn’t an unusual incident; since 2023, relocations have made up two-thirds of the total office leases in Dublin.
Q1 has correctly been identified by agents as the lowest point in Dublin’s office leasing cycle, though this doesn’t imply we’ve navigated through all difficulties. Signing leases, which is their main day-to-day goal, is the focus of these agents.
However, the main concern for developers, investors and their backers is the rate of unoccupied offices, as this greatly influences rents and property values. Currently, Dublin’s unoccupied property rate is more than 15 per cent, indicating a surplus in the market.
With plans to complete an additional 250,000sq m of new spaces by the end of 2025, the unoccupied state will likely increase unless there is a significant improvement in both the amount and quality of take-up. Large tech rentals resuming or a reinforced office-return dynamic would necessitate the former. For the latter, lease assignments and those moving within the market would need to decrease in the leases mix. There are indications that these scenarios are gradually unfolding, albeit insufficiently fast to accommodate the fresh spaces entering the market. Hence, despite positive signs, it’s too early to assert the market is recovering.
John McCartney, Director of Research at BNP Paribas Real Estate, provided this analysis.