The 2020 office market statistics showed a dramatic but not unexpected reduction of 30 per cent in year-on-year office take-up in Dublin. The first quarter figures for this year will likely make for even more sobering reading as we will have been in full Level 5 lockdown for the entire period.
However, these figures do not reflect current market sentiment or activity, which has noticeably improved since late December 2020.
This improvement in occupier sentiment can be attributed to a number of factors, including rising headcount growth (particularly in technology companies), work-from-home fatigue and, most profoundly, the vaccine rollout.
With the introduction of viable vaccines, occupiers have taken the view that there is now a clear time horizon of between six and nine months to when workers can get back to the office. How firms use offices and how many days per week individual staff members will be in the office remains to be seen in terms of an overall trend, but office workers will be going back. That much is clear.
One of the key metrics we use to assess the market is active demand and following the initial lockdown period in March 2020, many requirements were cancelled. However, a significant number of other requirements were put on hold, with decision makers adopting a “wait-and-see” approach.
Our data shows that in January 2020, active demand was tracking at 3.5 million sq ft. Over the last 12 months following the first lockdown, active demand fell, but has remained relatively stable and even resilient throughout 2020 at between 2.7 million sq ft and 2.9 million sq ft (including paused deals and active requirements). Through the final quarter of 2020 and the first quarter of 2021, many previously-paused transactions have come live again and we expect most of this active demand to translate into completed transactions and subsequent take-up of space throughout 2021, 2022 and 2023.
Active demand in March 2021 is being tracked at 3.3 million sq ft split across a total of 164 requirements. To put this active demand into context, the long-run average annual take-up is 2.2 million sq ft, making the existing active demand the equivalent of 1½ years of average annual take-up. The dominant sector continues to be technology, accounting for more than 27 per cent of total active demand and the majority of active requirements (66 per cent) have targeted 2021 to take new space.
With the current lockdown restrictions (particularly construction restrictions) in place, however, it is likely that some of these requirements will get pushed into 2022. Developers have also noted this shift in sentiment from last year and again, perhaps unexpectedly, have in at least three instances appointed contractors to begin work on speculative office schemes in the city centre to provide more than 500,000sq ft of offices.
Despite and in some cases because of the pandemic, technology companies have continued to take on new staff throughout 2020. Some technology companies with offices in Dublin appear to be not only “pandemic-proof” in terms of their respective business models, but are ideally positioned to grow during a lockdown.
Companies such as Wix, 2K games, TikTok, Udemy, Amazon, Workday, Huawei and Stripe have all expanded their headcounts or have announced new jobs over the last 12 months. In all of the above examples, the growth in headcount in 2020 has translated into active demand for office space in 2021. This trend is evidenced in the most recent figures from the Central Statistics Office which show that in the final quarter of 2020, the tech sector recorded an annual increase in employment figures of 9 per cent in Ireland. Looking solely at Dublin, where tech accounts for 11 per cent of total employment, the sector saw an annual increase of 4 per cent, equating to 3,000 additional persons employed. In Dublin, occupiers typically allow for between 110sq ft and 140sq ft per employee when assessing how much space they will need (with this figure trending upwards over the last few years). We expect these new jobs to require between 330,000sq ft and 420,000sq ft of office space.
As we move beyond the pandemic, we expect that occupational densities and how occupiers use offices will be adjusted to reflect health and wellbeing polices and new agile work practices. However, a reduction in staff in the office on a day-to-day basis does not necessarily correlate with a reduction in the amount of space occupiers will need. This is due to a 5 per cent increase in office-based work projected over the next five years, the noted trend of increasing occupational ratios and potentially longer-term social distancing requirements in offices.
Impact of working from home on employees
Another factor influencing the changing sentiment is how working from home has impacted employees. We have seen a noticeable increase in demand from staff to have at least some access to an office environment, as evidenced by the growth in traffic volumes during the third lockdown compared to lockdown one. The last 12 months of working from home have presented many challenges, but with determination, resilience and adaptability, the workforce has mostly maintained productivity levels.
However, the work-from-home experiences have been relative with the experience of a “good” or “bad” lockdown being primarily dictated by age (young versus old) and “haves” and “have nots” (children and dedicated workspace). Staff have been increasingly negatively impacted by boredom, loneliness and isolation, which is more pronounced for younger staff and those who live alone, particularly during Level 5 lockdowns.
The rollout of vaccines has allowed businesses to begin focusing on the return to the office and assuming that the Government’s projections on the vaccine rollout are met, it is likely that this reoccupation of offices will begin in Dublin in the third and final quarters of this year. The planned return to the office coupled with growth in office jobs and in the tech sector indicate that take-up figures will start to improve in the second half of 2021. Where in 2020 much of the discourse was centred around the demise of the office, it is now clear that, based on current demand and activity levels, the office will continue to play an important role in our working lives.
John Shannon is an associate director in the offices division at Cushman & Wakefield