Dublin office market correction ‘well under way’ as vacancy rate rises

The Dublin office market entered post-pandemic “correction mode” in the first half of the year, HWBC said on Wednesday, as take-up levels slumped below the long-term average and the vacancy rate climbed. However, the property agent said it expects sentiment to improve in the early part of next year as the supply pipeline of new offices “slows to a trickle” and the market bottoms out.

The office vacancy rate in the capital surged to 14.4 between January and June, HWBC said in its first-half market report, up from about 10 per cent in the same period last year and is expected to ratchet upwards in the second half.

Office take-up, meanwhile, plunged from 87,839sq m (945,500sq ft) in the first half of 2022 to just 62,988sq m (678,000sq ft) this year while the average deal size fell to 696sq m (7,500sq ft).

Despite more than 46,451sq m (500,000sq ft) of reserved space, full-year take-up is projected to struggle to reach (139,354sq m) 1.5 million sq ft, compared with 215,302sq m (2.32 million sq ft) in 2022 and a 10-year average of 238,732sq m (2.57 million sq ft), HWBC said.

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“The shift in how organisations use their office space results in reduced requirements relative to staff numbers with hybrid working,” HWBC said. “This shift forms part of the cocktail leading to lower transaction activity relative to the pre-Covid market and this trend will likely continue into the first half of next year.”

At that point, sentiment is likely to improve as the supply of new offices “slows to a trickle”, it said. Despite the sharp decline in take-up, prime office rents “have remained stable to date” but there may be some pressure on headline lease terms as newer supply enters in the market in the second half of the year.

“Our expectation is market sentiment will turn in the first half of 2024 as capital values bottom out and the tap on new supply slows to a trickle,” HWBC said. “There was no new construction of office space for four years from 2011 to 2014 and this led to a build-up of demand and kick-started recovery. We expect there to be a similar supply gap emerging with few new speculative developments starts in 2024/2025 leading to a potential shortage of the highest quality best in class space.”

Paul Scannell, head of offices at HWBC, said the correction, which began in the first quarter of last year, “is well under way” and HWBC expects “to see the market recover in the coming years, driven by a growing demand for the highest quality office space”.