Ireland has not been immune to the global slowdown in spending on technology, which has been experienced in recent months.
Considering the job losses recently, it is understandable that the economy as a whole and in turn the property market has suffered. Reading the negative press coverage, particularly in the uncertain days following the terrorist attacks in the US, it would appear that the Dublin office market is doomed.
In actual fact, while the market has certainly taken a hit as a result of the slowdown in the IT sector, the fundamentals of the market are still strong and the market has certainly not dot-bombed. There is no denying that the Dublin office market has certainly benefited substantially in recent years from the booming technology sector. Average take-up of office space in the capital has doubled since 1996, when the average annual take-up of office space in Dublin was approximately 1 million sq ft.
Strong demand for additional office accommodation has meant that the total supply of office space in the capital has doubled to 21 million sq ft in the last decade, with the majority of this space coming on stream in the last three year period alone. Part of this demand can be attributed to the booming technology and telecommunications (TMT) sector.
However, we must remember that IT-related business accounts form only a proportion of take-up in the office market in Dublin. In 2000, IT-related activity accounted for less than 30 per cent of take-up in the Dublin office market with indigenous business services and professional and financial companies comprising the bulk of demand.
As the TMT sector has slowed globally, the Dublin office market has undoubtedly experienced a slowdown in demand.
However, overall take-up in the first six months of 2001 reached 79,432 sq m (855,027 sq ft) which is still a very healthy level of take-up when we consider that the average annual take-up in the previous three years has been 139,350 sq m (1.5 million sq ft).
We are in a different market and there is no doubt that recent events in the US will certainly impact on demand levels in the sector going forward. However, despite this, the fact of the matter is that the fundamental factors of supply and demand in the Dublin office market are still very healthy and there is no reason to panic.
The number of job losses that have been experienced in Ireland are not huge in the overall context, particularly when we consider that less than 6 per cent of the Irish workforce are employed by IT-related companies.
The IT sector in Ireland is widely dispersed. The sector has a strong regional presence with a large number of companies operating outside of Dublin in areas such as Cork, Drogheda, Limerick, Shannon, Galway and Waterford.
Practically every region has been affected by the downturn in the technology sector. However, the Dublin office market has not been overly exposed to this downturn. Indeed, apart from Gateway where over 1,000 jobs were lost, the Dublin region has not been badly hit in terms of job losses compared with provincial locations which possess little in terms of alternative employment opportunities.
In response to the general slowdown in demand, some of which is certainly attributable to the slowdown in the IT sector, lending institutions have become quite prudent in terms of lending for development. This has been positive in that it has resulted in a "sensible correction" of the market and avoided the problem of oversupply occurring in the main property sectors, particularly the office market. Many office schemes that were planned for the greater Dublin region have now been put on hold which means that development is coming on stream in a more controlled manner.
The overall vacancy rate in the Dublin office market has crept up from a steady 2 to 3 per cent over the last three years, to a current rate of 6 per cent. However, considering the current rate of supply coming on stream it is unlikely that this rate will alter significantly as we enter 2002.
While there is no denying that 4,500 high-tech jobs have been lost in Ireland since the beginning of the year, we seem to forget that none of the large employers such as Dell, Intel, Lucent or IBM has made large-scale layoffs. While the media focus our minds on job losses, we hear little about the 2,500 new jobs that have been created in the economy in 2001 in companies such as Prumerica Systems Ltd, Xilinx and Sun Life Info Systems.
There is no doubt that the slowdown is far from over and that further job losses in the IT sector are likely to be seen in coming months. However, we must remember that it is a slowdown and not a meltdown.
Since the beginning of 2000, less than 9 per cent of Internet companies have shut down and while the press coverage indicates total despair, August actually marked the fifth month that dot.com closures declined.
The technology sector is consolidating and the expectation is that those that ultimately survive will prosper. Accommodation to facilitate this will undoubtedly be required.
In any event the market is not overly reliant on the IT sector. For various reasons development is coming on stream in a more controlled manner and indigenous demand will, to some extent, fuel demand for this accommodation.
The Irish Government has revised its figures for new job creation in 2001 but the fact of the matter is that an additional 50,000 jobs will have been created by the year-end, which is positive for the office sector.
Prime office rental values in Dublin have fallen back to £409 per sq m (£38 per sq ft) from £430 per sq m (£40 per sq ft) earlier in the year, which places Dublin in a very competitive position compared to other cities globally.
While multi-national demand will undoubtedly be curtailed over the next few months as the enormity of the tragedy in the US is absorbed, the fundamentals in terms of our corporate tax structure, occupation costs and our highly educated English-speaking labour force will continue to attract occupiers to Dublin.
Richard Murphy is associate director of agencies at Insignia Richard Ellis Gunne
