Vacancy rate in Dublin office market likely to peak at 15% this year via IrishTimesBiz
ortion of lettings, widening the gap between take-up and absorption. This is compounded if movers are downsizing, as often happens in a downturn. Reflecting the global headwinds of 2022, most large Dublin office lettings involved movement within the market.
Downsizing was not prominent per se. But occupiers who might prefer a smaller office are often bound into long leases, and the surge of space becoming available to sublet suggests thatLeaving aside random judgments about which buildings to exclude, the notion that vacant older stock does not drag on prime rents is logically dubious More than 230,000sq m of new office space was delivered in Dublin last year – the most since 2008. This was somewhat offset by demolitions but, given current churn and subleasing trends, over 450,000sq m of take-up would have been required to digest the additional stock. Ultimately, 248,000sq m was achieved. This was a solid performance, and testament to the broad base of occupier demand that exists beyond tech. But it could not prevent vacancy rising from 10 per cent to 12.4 per cent. This year will be the same, with a similar amount of new space scheduled for delivery, and with demand conditions remaining challenging.With vacancy rising, some commentators have attempted to define older buildings out-of-sce when calculating the vacancy rate. The premise is that many of today’s vacant buildings do not meet contemporary occupiers’ environmental requirements. As these are not competing with modern prerties, it is argued that they are irrelevant to prime rents and they should therefore be excluded from the vacancy-rate calculation. Dublin’s office market is in a downswing. Vacancy has been rising for 30 months and, axiomatically, this will drag on rents This is a crude and slightly desperate attempt to understate vacancy, and it is fundamentally ill-conceived. Leaving aside random judgments about which buildings to exclude, the notion that vacant older stock does not drag on prime rents is logically dubious. Many of today’s vacant offices are, indeed, Grade C. To let them, rational owners will cut rents. This creates a headache for the owners of Grade B buildings, who have to counter-cut to preserve their competitive advantage. In turn, this passes the problem to Grade A owners who must react to reduced asking rents for the better Grade Bs. Building quality is a continuum, and because every prerty competes with its next nearest substitute, prime rents eventually respond to vacancy movements at any level in the market. Dublin’s office market is in a downswing. Vacancy has been rising for 30 months and, axiomatically, this will drag on rents. So far, the obvious pressure has been on suburban and older stock. But rent-free periods on prime lettings are lengthening, lease-breaks are being negotiated-in, and prime rents are falling in real terms. There is no point equivocating about this – price discovery and the resumption of normal trading happen faster in more transparent markets. Instead, analysts should focus on the fact that the current downswing will neither be deep nor prolonged. Given the relatively modest construction pipeline, vacancy should peak at around 15 per cent later this year before falling in 2024 as develment slows.
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