In the latest Bayfield Training Webinar, David Hourihan MSc RE Programme Leader at UCEM and Lucy Connolly, Divisional Director at Bannon present: An Introduction To The Dublin Commercial Office Market.

Dublin Office Investment Sector—Structure

David describes Dublin historically as having Georgian-style office space and embassy belt-type material. However, significant changes have occurred. Lucy clarifies that Dublin’s total office space is approximately 45 million square feet. Dublin’s development has resulted in a mixed-bag of office assets. It consists of various property types, including Grade A, second and third-generation office buildings, and Georgian-area properties.

Since the last Global Financial Crisis, Dublin’s stock has increased by 7 million square feet much of which has been occupied by the technology sector. Dublin is home to several large technology corporations, most of which are housed in the Grand Canal Dock.  The Grand Canal Dock is colloquially referred to as Dublin’s Silicon Docks. The term refers to Silicon Valley and was chosen because of the concentration of European headquarters of leading technology companies, such as Google, Facebook, LinkedIn, Twitter and more recently Tik Tok (who have agreed to take approx. 17,000 sq m). Furthermore, the North Docks is also undergoing significant development. Approximately a million square feet are being developed in the North Docks.

A feature unique to Dublin that a market like London does not have is height restrictions. Dublin’s building height restrictions have been a point of contention in recent months. Buildings in Dublin are currently limited to a maximum height of 60 metres, but exceptions are made for taller constructions in locations designated as Strategic Development Zones (SDZ). These zones encompass the regions surrounding Heuston and Connelly stations and the Docklands and George’s Quay.

Regarding the office lettings market, vacancy rates have drifted around 6% to 9% over the last 12 months. Moreover, prime rental growth has softened and plateaued. Nonetheless, headline rents are for the most part remaining steady. Lucy explains that a significant trend creeping into the market is lease flexibility, with tenants looking for earlier breaks.

Furthermore, David describes how take-up by sector is heavily slanted towards TMT, in what he calls a “TMT bubble,” and an “over-reliance on-demand from TMT.” For example, 38% of office take-up is by TMT-aligned enterprises. One of the key attractions to the Irish market has been its low corporation tax rate. There are currently G7 discussions regarding an announcement about a global approach to corporation tax instituted at 15%. Irish corporation tax is currently 12.5%. Thus, should new regulations be passed, the Irish market may potentially lose some of its competitive advantage over other European markets.

Dublin Office Market—Investment overview and SWOT Analysis

In 2020, the Dublin office market registered roughly 3 billion euros in total turnover. An estimated 39% of 2020 total turnover was in the office sector. Moreover, Dublin represented 96% of the total turnover.

Furthermore, there were 161 538 square metres of office take-up in the occupier market, with TMT accounting for 72% of the take-up.

Regarding the SWOT analysis, David began with Dublin’s strengths. As David explained, Dublin has a low corporation tax rate (12.5%) and a very mature/transparent market to do business in. For example, Ireland is currently ranked as number 8 out of 99 countries in the latest JLL global real estate transparency index (GRETI) report. The economy is showing positive GDP growth, and lockdown restrictions are currently being lifted. Moreover, Dublin has no oversupply of new office developments. In addition, post-Brexit, Dublin is now the only English-speaking capital within the EU.

Regarding weaknesses, David points towards stamp duty tax (7.5%), upward/downward rent reviews (relative to upward only reviews), and an overreliance on technology companies as occupiers. Threats to the Irish real estate markets to watch out for include possible further coronavirus-related lockdowns, uncertainty over Brexit, and increased post-Brexit political tensions between the UK and the Republic of Ireland regarding border protocols. Nonetheless, there are opportunities, including changing work patterns and the bounce back in the economy.

Dublin Office Investment Market—Key trends and forecasts

To conclude, Lucy and David discussed the key trends and forecasts of the Dublin Office market. They examined office rentals, the types of investors in the market, and the Dublin market’s life cycle stage.

David explained that office rents in Dublin are holding; however, they might rise again, as demand powers ahead with the easing of lockdown. This is especially true given the type of investors active in the Dublin market. Lucy explained that the most active investors have included European and US institutional investors in recent years, most notably Henderson Union and the DWS Group. They are, according to David, long-term investors, not short-term speculators. Finally, Lucy places the Dublin office market in a holding ‘wait and see’ position between the expansion and oversupply phases of the life cycle. Lucy emphasizes that there is a very strong occupier market for prime Grade A office space, mainly green buildings. This is because businesses have made ESG a priority. As a result, green buildings are critical for maintaining the value of an office portfolio.