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Office leasing activity in Dublin down 47% year-on-year

CBRE Ireland have today released figures for the volume of office leasing activity recorded in Dublin for the full year 2020. According to the property consultants, in total, 28,106 square metres of office leasing activity was recorded in the Dublin market during Q4 2020, bringing total take-up in 2020 to just less than 160,000 m². This is down 47% on the total volume of leasing activity in the Dublin market in 2019. While the volume of leasing activity recorded in the last quarter of the year was higher than the preceding two quarters, it is the lowest volume of Q4 take-up recorded in Dublin for more than a decade. Indeed, 69% of total office take-up in Dublin in 2020, occurred in Q1 before the onset of Covid-19.
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At the end of 2020, there was 28,610 square metres of office accommodation reserved in the capital, which will feed into leasing activity in due course. There were 30 office leasing transactions signed in Dublin in Q4 2020. This brings the total number of office leasing deals completed in 2020 to 105, compared to 199 the previous year.

14 of the 30 office transactions signed in Dublin during Q4 were to Irish companies with 4 transactions to US companies, which between them accounted for 36% of Q4 take-up. For the year as a whole, 27 of the 105 lettings signed in Dublin were to US companies which between them accounted for 68% of annual take-up. There were 52 lettings to Irish companies, accounting for 23% of annual take-up while 3% of lettings in 2020 were to UK companies, accounting for 10% of annual take-up. There was a slight decline in terms of active requirements quarter-on-quarter with overall demand standing at 231,610 m² at the end of Q4 - down 2% on the previous quarter and down from a record 430,000 m² at the beginning of 2020. CBRE say that most of this decline is a result of companies putting expansion and relocation plans on hold due to uncertainty.

The overall rate of vacancy in the Dublin office market rose quarter-on-quarter from 8.64% at the end of Q3 to 9.1% at the end of Q4 2020. Prime headline quoting rents in the city centre stood at €645 per square metre (€60.00 per sq. ft.) at the end of the year, down 8% from where they stood at the beginning of the year . Despite some softening in prime headline rental levels in the city centre during 2020, prime headline quoting rents in the south suburbs remained stable at €317.42 per m² at the end of Q4 while quoting rents in the north and west suburbs also remained stable at €226.00 per square metre and €193.68 per square metre respectively.

Speaking at the launch of their Outlook 2021 report earlier this week, Marie Hunt, Executive Director and Head of Research at CBRE said, “With most office occupiers throughout the country forced to work remotely from mid-March onwards and a travel ban restricting everyone’s movements including the Industrial Development Authority (IDA) and potential occupiers, unsurprisingly, company expansion and relocation plans were put firmly on hold as organisations grappled with the changed economic backdrop. This had a negative impact on leasing volumes in the Dublin office market from Q2 2020 onwards, with overall take-up for the year down 47% on the previous year. However, unlike the last cyclical downturn following the Global Financial Crisis, the office market has been better able to withstand the downturn in leasing activity experienced since the onset of Covid-19. One of the main reasons for this is the very disciplined supply response of recent years, with much of the office stock under construction in the capital already accounted for. Furthermore, the office market entered this downturn from a position of strength, with the overall rate of vacancy in Dublin at a low of around 5% in early 2020. While the vacancy rate in the capital did increase during the last year, this was primarily as a result of an increase in the availability of ‘grey space’, as opposed to a large volume of new speculative stock coming on stream. Another major difference to the last cyclical downturn is the more secure make-up of the office occupier base, with several of the city’s largest multinational tenants (many of whom only established a footprint in Ireland in the years since the last downturn) involved in industries that were largely unaffected by the pandemic. Many of these organisations have plans to grow their Dublin footprint over the coming years”.

According to CBRE, the Dublin office market has effectively been ‘on pause’ for the last nine months, with activity largely reliant on relatively small lettings, to occupiers who are coming up to particular lease events or occupiers looking for an opportunity to secure favourable terms while there is increased availability in the market. This ‘window of opportunity’ is likely to be relatively short-lived however, as the property consultants believe that activity will kickstart relatively quickly in this sector once office workers return to their places of work and companies have more clarity on how much office accommodation they will ultimately need longer term.

Activity has improved since news of vaccines was announced and CBRE expect to see a notable pickup in office leasing activity from the second half of 2021 onwards as economic activity improves and several postponed mandates are reignited, with demand likely to be primarily led by pharmaceutical companies and the technology sector. Unlike recent years, when take-up in the Dublin office market was significantly boosted by multiple large takes of accommodation, CBRE expect to see fewer large transactions being signed during 2021. This will encourage some landlords to adopt a multi-let strategy in order to reduce vacancy in particular buildings and generate income as opposed to holding out for longer to secure a single occupier.

Until such time as there is an improvement in occupational activity, most developers will be reluctant to commence large-scale speculative office developments, which, in turn, will continue to keep supply in check. In any event, it will be more difficult to source funding for speculative development in 2021. Some office buildings that may go on site in the capital this year include the Coopers Cross development in Dublin 2; the College Square development in Dublin 2; the 1 Grand Parade building in Dublin 2; Hume House in Dublin 4 and Block N in Central Park in the south suburbs. Meanwhile, some office buildings that are due for completion in Dublin this year include The 8 Building in Newmarket in Dublin 8; The Exo in Dublin Docklands and the Tropical Fruit Warehouse scheme in Dublin 2.

According to CBRE, one of the enduring legacies of 2020 will be that the quality of the work environment will become more important than ever, both in terms of enticing existing staff back to the office and attracting new talent to an organisation. The occupational needs of companies will change as a result of the outbreak of Covid-19, and while companies may not necessarily need less office accommodation, the way they use that accommodation will definitely change. This more distributed pattern of work will have implications for workforce management. Occupiers the world over will have to think seriously about the configuration of their office buildings, how efficiently accommodation is being used and how this might change in the future, with an increasing proportion of staff likely to work remotely, either from home or another ‘3rd place’, at least part of the time. Some multinational occupiers may embrace a geo-flex model whereby some of their staff will be based in another jurisdiction entirely, albeit this will have certain tax implications.

The design of office buildings will also change, with the incorporation of more flexible layouts and the use of microbial materials and touchless technology necessary to future-proof buildings. Sustainability has become even more important than ever in the last 12 months and CBRE expect to see increased focus on wellness, ESG and green credentials in 2021, both for new office buildings and those that will have to be retrofitted or repurposed.

CBRE say that 2020 has been very challenging, and, to some degree, has exacerbated structural trends that were already in evidence in the office sector. It remains to be seen to what degree this unprecedented ‘black swan’ event will change the trajectory of the Dublin office market. However, it is clear that developers and occupiers who embrace flexibility and prioritise design, placemaking and sustainability will fare best in the new paradigm. The priority for now is to get through lockdown and ultimately get workers back to office buildings. If this can be done safely and efficiently, CBRE are hopeful of a return to a more normalised level of transactional activity in the Dublin office market from mid-year 2021 onwards.