Significant adoption of remote working coupled with the downturn in the tech sector have created a drag on the office leasing sector in Dublin during the first half of the year.
Just 65,853 sq m of office space was let between January and June, down more than a quarter on the same period last year and almost a third below the 15-year average.
That is according to BNP Paribas Real Estate Ireland’s (BNPPRE) latest report on the office sector in the capital, which says the drop is despite Ireland creating jobs at twice the average rate across the EU.
"There were actually more deals done in the first half of this year than in H1 2022 but, reflecting the shift in focus away from tech, the deals are smaller," said Keith O’Neill, Head of Office Agency at BNPPRE.
Indeed, the report shows that tech firms accounted for just 12.6% of Dublin office take-up in the second quarter of the year.
That drop is significant because between 2017 and 2020, tech firms made up 53% of the office space leased in Dublin.
However, this slump has been partially offset by strong demand from the traditional professional and financial services occupiers, including aircraft leasing companies, BNPPRE said.
The situation has been exacerbated by Ireland being the biggest adopter of remote working in the EU, leading to less office demand.
According to Eurostat the proportion of Irish employees sometimes or usually working from home rose from 19.9% in 2019 to 36.2% last year, marking the largest percentage point increase of any EU country.
BNPPRE forecasts that by the end of the year office vacancy levels will hit 15%, as the level of completions of new space grows.
At the same time, rents for prime office space will continue to level off.
"Take-up for the full-year is likely to be 150,000 – 170,000 sq m," said John McCartney, BNPPRE's Director of Research.
"This will not be sufficient to absorb the net additional space that is delivered. Therefore vacancy will kick-up towards 15% by year-end. This is likely to put pressure on rents, even at the prime end of the market."
But BNPPRE expects that vacancy rates will peak at manageable levels later this year or early next year and then fall as the office construction pipeline falls away.
