Competition for Dublin offices could squeeze Irish firms out of market

Brexit likely to further increase demand from international businesses, says Lisney

Soaring demand for office space in Dublin city centre could result in many indigenous firms being priced out of the market, Lisney has warned.

In its annual property review and assessment, the estate agent said demand from international IT and financial services companies was continuing to outstrip supply and drive up rents. This trend was likely to be exacerbated by the impact of Brexit-related lettings, it said.

“The net result of this activity is that as demand grows, which will drive rental returns further higher in Dublin’s central business district, the majority of indigenous Irish companies selling to the Irish market may not be in a position to compete with major international companies generating revenue serving overseas markets,” the agency said.

“Owing to this, there are real risks that a two-tier market will emerge, with indigenous Irish companies being priced out of the capital’s city centre.”

In its report, Lisney said that after several years of inactivity in the commercial office market, 2016 saw about 230,000 sq m of office space let in the capital. This equated to an occupancy rate of more than 90 per cent, the highest level recorded in the capital in 16 years.

Lisney’s analysis of the market shows that the pace of construction is continuing at levels nearly 50 per cent higher than the total space let in 2016, with 320,000 sq m currently in build.

However, it noted that almost 42 per cent of this planned space was already pre-let or reserved.

Lisney said that major IT, financial services and foreign direct investment (FDI) companies based in Dublin, which are servicing international markets, require a prime central location to retain current staff and attract top talent both in Ireland and from overseas.

Because these companies are servicing overseas work rather than serving the domestic market, Lisney suggested they had greater “latitude” than indigenous Irish companies in paying a premium in the capital.

"Whilst it is encouraging to see Ireland continuing to attract FDI and major IT and financial services companies, continued demand for prime city-centre locations from these businesses where vacancy rates are at among the lowest levels historically is causing rents to increase significantly," Lisney chairman James Nugent said.

“With competition intense for available developments, lettings from blue-chip international companies taking significant amounts of space are more attractive to developers. This is leading to a perfect storm of sorts for indigenous Irish companies struggling to compete for the most centrally located office space.

“There is a real risk that with continued inward investment, with its resultant need for office accommodation in the central business district, that domestic companies will be forced to seek alternative office space in suburban locations where comparable space can be about half of city-centre office costs. Brexit-related market activity will only accelerate the issue.”