The impact of Covid-19 on the Dublin office market caused rents to fall to their lowest level since 2016 and saw lettings slow to a near standstill last year.
They are the key findings from commercial property adviser HWBC in its 2020 Office Review, which is due for publication on Friday.
With the majority of companies postponing long-term letting decisions due to the uncertainty caused by the pandemic, office rents retreated from the peak of €65 per square foot recorded in December 2019 to €59 per square foot at the end of 2020.
Take-up of space in the city’s office sector came in at 1.61 million square feet, down 49 per cent on 2019.
But the report’s authors say there were tentative signs of a recovery in the final quarter of the year. This is expected to continue and to strengthen over the course of 2021 as the rollout of Covid-19 vaccines continues.
The vacancy rate in the Dublin office market ended 2020 at 9.5 per cent due to reduced demand and an increase of so-called “grey” space coming to the market – where a company looks to sublet space that is surplus to requirements.
HWBC estimates the grey market currently accounts for about 25 per cent of the available office space in the capital and is competing with traditional landlords, often by offering more flexible terms to prospective occupiers.
HWBC’s report estimates that some 5.1 million square feet of new office space is due to come to the market over the next two years as developments now in construction are completed. About 54 per cent of this space has already been pre-let, leaving what the report’s authors describe as “a manageable” 2.35 million square feet to be occupied, an amount equivalent to the average annual long-term take-up rate.
While the biggest office letting of 2020 saw Mastercard signing up for 245,500sq ft at One and Two South County in Leopardstown prior to the unwelcome arrival of Covid-19 in Ireland, the Dublin market still experienced a number of bright spots in the midst of the lockdown.
These included the news that An Post intends to move from the GPO to the Exo Building in the city's north docklands, Microsoft's decision to rent 4,366sq m (47,000sq ft) at No 3 Dublin Landings, Rabobank's agreement to take 2,183sq m (23,500sq ft) at 76 Sir John Rogerson's Quay and Amazon's leasing of 75,000sq ft at Burlington Plaza.
This year’s activity looks set to receive a significant boost from TikTok’s ongoing search for up to 46,451sq m (500,000sq ft) of office space to facilitate the expansion of its Dublin-based operations. The Chinese-headquartered social media company is understood to be looking to secure some 250,000sq ft of that space by the end of 2021.
Commenting on the outlook, HWBC managing director Tony Waters said: “By summer we anticipate that rollout of the Covid-19 vaccine and likely improving economic sentiment will restore potential occupiers’ ability to make long-term decisions and so this declining market is likely to be short-lived. Investors and potential occupiers face a narrow window of opportunity to strike before the appetite to acquire and lease space returns with a vengeance in the second half of the year.”
Looking at the post-pandemic prospects for the Dublin office market and for the office model more generally, HWBC’s head of offices, Paul Scannell, added: “The pandemic has accelerated the change to more flexible working and blended work practices, underlining the importance of the office to foster collaboration, business development and a place to engage face to face with colleagues and clients.
“Foreign direct investment – particularly from the technology sector – has been the driver for the Dublin market, and it’s positive to see TikTok choosing to expand its operations here. It is increasingly clear that the role of the office will remain relevant in whatever emerges as the new reality post-Covid.”