No recovery expected in Dublin office rents until 2024

Biggest delivery of space since financial crisis and slower take-up following Covid is driving up vacancy levels

While 2022 is gearing up to be the biggest year for new office delivery since the global financial crisis with some 240,000sq m (2,583,339sq ft) due for completion in Dublin, a recovery in average rents is still some way off as corporate occupiers weigh up their requirements in a post-pandemic world.

That’s the key takeaway from a new report by property consultants BNP Paribas Real Estate Ireland .

An examination of prime headline rents in Dublin shows them to be hovering at around €619 per sq m per annum, or 7.6 per cent off their pre-Covid peak, with some 5.5 per cent of that slippage taking place in 2021.

With prospective occupiers now slower to commit to leases as they work through their occupational strategies for a post-Covid world, BNP Paribas director of research John McCartney believes demand this year might not be enough to absorb all the new space coming on-stream.

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Looking at the impact this is likely to have on office rents, the report says: “Years of empirical research, including on the Dublin market, have established a fairly reliable inverse lagged relationship between vacancy rate and rental movements. With vacancy up in 2021, this suggests that average rents may slip further in 2022, and tenant incentives may increase. Following the same logic, with completions likely to exceed absorption in 2022, rental terms may move further in favour of tenants next year too.”

Extra stock

Commenting further on the outlook for the market, McCartney said: “Due to the strong construction pipeline we expect Dublin’s office stock to rise by over 200,000sq m in 2022. Ordinarily lettings of over 300,000sq m would be needed to absorb this extra stock. This is because the tenants who lease space are often moving out of existing accommodation, leaving vacancy behind.

“Approximately 155,000sq m of office space was leased in Dublin during 2021. Despite the improving trend occupier caution about the return to offices means that it will be challenging for this figure to double in 2022. As a result we don’t expect vacancy to tighten this year.”

The report notes that average rents usually only pick up 12 months after vacancy rates start to contract. On this basis BNP Paribas does not foresee a widespread recovery in office rents before 2024.

Developers involved in the delivery of best-in-class buildings in prime locations can expect to see their offices achieving higher rents however, as corporate occupiers shift their operations from older buildings to newer space with the appropriate environmental certifications, the report finds.

Ronald Quinlan

Ronald Quinlan

Ronald Quinlan is Acting Property Editor of The Irish Times