The office market is showing signs of recovery, but not enough to absorb all the new buildings

A new report from BNP Paribas Real Estate Ireland (BNPPRE) shows that demand for office space rose 66% to 48,000 per square meter in the three months to the end of September, consolidating the growth seen in the previous quarter.

Basic rental rates remained unchanged and amounted to 673 euros per sq. m. m per year. This contrasts with the investment market, where prices for luxury commercial offices remained under pressure during the same period.

On the rental side, the report shows that the tech sector, which dominated rental activity in the capital for a decade after the financial crisis, is still on the sidelines.

Some change in work-from-home trends could support future demand in this sector.

It accounted for just 7% of activity in the latest period, compared with an average of 51% in the five years to the end of 2021.

However, there are signs of large-scale investment by technology companies here in artificial intelligence, and some reversal in work-from-home trends could support future demand from the sector.

Meanwhile, data suggests demand from “traditional” industries, including financial and professional services, remains strong.

While data shows positive demand dynamics, potential tenants have a significant portfolio of high-quality offices to choose from, including a number of new builds that, in many cases, were in the planning and development long before Covid and subletting.

In the upscale Dublin 2 area, developer Marlet has completed the Longstone House element of the College Square project, IPUT has completed the extension to 15 George’s Quay and the Grand Canal Quay Malthouse is also nearly complete.

Moving, including from old apartments to new buildings with a higher rating, is also a feature of the market.

This new development is starting to slow, said BNP Paribas research director John McCartney.

However, nearly half of occupied space in the third quarter of 2024 was from subleases/assignments, which do not deduct vacancy. Moves, including from older apartments to higher-rated new buildings, are also a feature of the market, which again means the impact of vacancies is limited.

“Continued improvement in sales performance is an important first step towards market recovery. However, with a significant amount of new space already under construction, vacancy rates are likely to rise further in the short term, putting pressure on rents,” McCartney said.