Dublin office vacancies may top 20% under severe scenario, Central Bank report says

The vacancy rate in Dublin offices could more than quadruple from pre-Covid levels to exceed 20 per cent in 2023 under a severe scenario painted by Central Bank economists in a new report, as uncertainty hangs over the future of the workplace after the pandemic.

The level of office space that was not let out in the capital exceeded 9 per cent by the end of 2020, up from 5 per cent for the previous year, the Central Bank staffers noted in a report on the commercial property market, published on Wednesday.

They predict that the rate will rise to almost 12 per cent by the end of this year under a “central scenario”, with “less severe” assumptions pointing to the vacancy rate returning to pre-pandemic levels over the next two years.

“By contrast, the ‘more severe’ set of assumptions would potentially lead to a the vacancy rate continuing to rise over the next few years as the envisaged alterations to office layouts [providing more space per worker] are not enough to offset the excess vacant space arising from such high instances of remote working,” the report said.

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With businesses and governments globally working on back-to-office plans as the rollout of vaccines gather pace, the Taoiseach Micheál Martin said on Tuesday that he is planning for a phased return to offices in the State from September. The Tánaiste and Minister for Enterprise Leo Varadkar, meanwhile, has backed a return from August. Many business are planning for a hybrid model, splitting the extent to which workers operate from home or in the office in future.

Survey

A survey, taken among 1,200 people around the country by the polling firm on behalf of Virgin Media, claims that 43 per cent want to work at home three days a week with two days in the office, while 15 per cent say they’d prefer the reverse situation of three days in the office and two days at home.

Following a 50 per cent decline in Dublin office letting activity last year, take-up fell by at an annual rate of 63 per cent in the first quarter of 2021, to 4,000 square meters of space, the lowest level since 2009.

“An increase in the willingness of companies to facilitate their staff to work remotely, accelerated by the Covid-19 shock, will likely affect requirements for office space going forward. Much will depend on what companies and employees decide is the optimal split between working from home and time spent on site,” the Central Bank report said.

“With a further 1.2 million square metres of office space, at various stage of the delivery pipeline (ie units under construction, with planning permission or applying for planning permission), this could potentially give rise to risks involving the potential for an over-supply of office space in the Dublin market.”

On the other hand, some of the existing office space may be redesigned to allow for additional space per employee or repurposed to facilitate additional shared on-site collaboration spaces like meeting rooms and training facilities and amenities.

On balance, the Central Bank staffers believe that the outlook for Irish commercial property prices “is weak” over the short to medium term, following on from a 6 per cent decline in values last year, driven by retail property amid widespread Covid-19 restrictions, even as capital values and rents in the industrial and logistics sector grew.