Office take-up in the Dublin market reached 832,314 sq. ft. in Q4 2022, bringing annual take-up to over 2.6 million sq. ft. This is an impressive result and is above the ten-year average, but masks increasing uncertainty in the office market which will impact demand and activity going forward.
There were 55 office occupier deals completed during Q4, with an average deal size of 15,133 sq. ft. The largest of the quarter saw Citi sign for approx. 300,000 sq. ft. at Ronan Group’s planned Waterfront South Central scheme in the North Docks. This brings the number of deals completed in 2022 to 216, compared with 162 in 2021 and just 106 in 2020.
The Citi deal reflects a trend of increased activity among financial and professional services companies, many of whom are seeking to move into newer, more sustainable buildings. In Q4 alone, the finance sector accounted for 41% of take-up, with a further 17% attributable to aircraft leasing companies such as SMBC Aviation Capital, who leased 135,379 sq. ft. at Fitzwilliam 28, Dublin 2. Professional services accounted for 13% of take-up with the technology (TMT) sector accounting for 10%. Prime rents were relatively stable throughout the year, ranging from €62.50-€67.00 per sq. ft.
2022 was in many ways a turbulent year for the office market. The year began with the ending of pandemic-related restrictions which provided more certainty to employers in terms of post-pandemic workplace strategies. Hybrid working practices continued to evolve, although many companies struggled to bring staff back to the office. Employment levels reached all-time highs and IDA Ireland reported another record year for FDI – a key driver of office take-up.
During this period, surging inflation and geopolitical tensions caused a slowdown which led many commentators to predict a global recession. By July, Twitter had announced plans to scale back physical office space in several global markets, and other major tech companies followed suit. The level of sublease or ‘grey space’ in the market increased sharply to 1.8 million sq. ft. at the end of Q4, rising to over 2 million sq. ft. if pre-let buildings under construction are included. By the end of Q4, vacancy had increased to 13% from 11.5% the previous quarter. Vacancy in the city centre was slightly lower at 12.9%, while suburban vacancy stood at 13.8%.
Higher construction costs and rising interest rates have impacted developers and it is likely that the latest wave of speculative development is now coming to an end. Increased fit-out costs are dampening occupier appetite for new, unfitted offices, although most occupiers are still targeting high quality space with good ESG credentials. It is interesting to note in this regard that 70% of take-up in 2022 was attributable to Grade A office space, rising to 84% for larger deals (10,000 sq. ft. plus). The level of grey space on the market could increase further in 2023 although it is likely that the best quality fitted space will be leased more quickly, perhaps to the detriment of newer, unfitted space.
Finally, while take-up exceeded expectations in 2022, the level of reserved space had fallen to just under 550,000 sq. ft. by year-end and active requirements also declined to 1.7 million sq. ft. from 2.5 million sq. ft. the previous quarter. These factors indicate a more uncertain picture for the office market in 2023 although a relatively strong domestic economy and increased activity among financial and professional services companies should help offset challenges in the tech occupier sector to some degree.