Property experts say rumours of the capital’s demise are greatly exaggerated.
GOOGLE’S DECISION THIS week to pull the plug on a deal to rent office space near Dublin’s docklands sent shivers down many a spine.
Since March, when the virus first flushed hundreds of thousands of workers out of their city-centre offices, speculation about the future of the capital and what it will look like when all is said and done has been rife.
Is Google’s decision the first omen that Dublin will soon be pock-marked by half-developed sites and abandoned office blocks in the near future?
Anything is possible, of course, and change seems inevitable but the outlook is perhaps not that bleak in the short to medium term.
Some experts are cautiously optimistic that visions of the capital descending into a ghost city overnight are off base.
A new report by property consultants HWBC suggests that while we are right to be concerned, the situation is “structurally different” from the last crash for a couple of important reasons.
You don’t need a detailed grasp of commercial property to understand why the pandemic is sending shockwaves through the market.
As Iain Sayer, director of HWBC, told TheJournal.ie, “it will be a surprise to nobody” that office take-up rates have been “very, very low” over the past few months.
In fact, office take-up dropped by 36% in the first half of the year from the same period last year, according to the HWBC report, and “a record level of demand” in the first three months of 2020 was “offset by the market coming to a near standstill in the second quarter as potential occupiers delayed decisions due to the uncertainties posed by Covid-19.”
With developers increasingly unnerved by the fall in demand and office take-up — the amount of floor space occupied through new lettings — expected to fall to levels not experienced since 2012, HWBC expects rents to fall by the end of the year.
This would mark the first drop-off in rent prices since 2011, the very lowest point of the last crash.
In reality, however, the red-hot commercial property market had already begun to cool sometime in 2017.
According to analysis by property services firm CBRE, Dublin office rents plateaued around then and remained stable all the way up to the second quarter of 2020.
Office take-up followed, beginning to decline slightly from 2018 and hitting a 10-year trough by the end of June this year.
So we’ll have to wait for full-year figures but there’s no doubt that the market is going to take a hammering in 2020.
That’s the bad news.
According to HWBC, the good news is that wheels are very unlikely to come off the Dublin office market altogether in the near future.
For a couple of reasons, the report claims that a deluge of abandoned office buildings is a ways off for the time being.
Firstly, there isn’t a huge oversupply of commercial property in the capital, as was the case before the last crash.
There are, to be sure, a number of major projects in the works that were slowed during the government-imposed shutdown when building sites were all but closed.
Some of the most headline-grabbing are those linked to tech companies like Salesforce and Facebook. Both of those projects are being delivered by Johnny Ronan’s Ronan Group while property company IPUT is in the process of developing a massive site at Wilton Park in Dublin 2, which has been pre-let to LinkedIn for its European campus.
But according to Sayer, if you’re a big company looking to rent space in Dublin, you still “don’t have a huge amount of choice” despite the recent boom in development.
This is particularly pronounced, he said, in Dublin’s docklands.
“Towards the end of next year, almost all the sites in the docklands will have been built out,” he explained.
As we know, over half [of the office blocks being developed in Dublin]are already let. So the supply side is still very constrained. You’re not going to have a bunch of landlords sitting on empty buildings who are going to be panicking and slashing rents.
No news is bad news
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Surprisingly, HWBC doesn’t think that working from home is going to have a huge negative impact on demand either.
This is particularly important when it comes to the tech sector, which, it says, has been “the single biggest driver of demand” for office space in the Dublin Market.
“Even before the pandemic,” the report explains, tech companies allowed employees “a large amount of flexibility” about where they worked.
In fact, tech companies only usually rent office space at “a 50-70% occupancy rate, and continue to expand in Dublin where they account for the bulk of the 500,000 sq ft of space currently in advanced negotiation for completion before year-end.”
“I think we’re actually getting to the end of the work-from-home honeymoon period,” Sayer says.
Although he says Covid is obviously going to be with us for some time, he believes large organisations are going to want to have people working together in some sort of “physical proximity” to each other.
Because the virus has ruled out things like hot-desking, he thinks that companies might find that they need even more space than they did, so the situation could “net out at not much change at all”.
“I’m not sure I’d accept the thesis that there will be fewer offices. I think I should say, I think that there might be offices more widespread throughout cities,” he said.
“There’s a lot of companies that would have rented space at a 100% occupancy rate, mainly in professional services industries. It may become less than that but they will still want people to be coming in at some point during the working week.”
This might be good for the suburban office market, he explains, but it shouldn’t cause the outright decline of the city centre either.
“I don’t for a moment think that Arthur Cox, for example, are going to move their office to Blanchardstown,” Sayer said.