A surge in the number of empty offices is giving businesses more bargaining power with landlords, according to a new report.
Developers completed almost 84,000sq m of office space in Dublin over the first three months of this year, more than in the whole of 2023, according to BNP Paribas Real Estate Ireland.
At the same time businesses leased just 16,310sq m, the lowest in three years, says the bank’s May Dublin office report, published on Tuesday.
John McCartney, its research director, says rising vacancy rates are giving tenants “more choice and more leverage in their rent negotiations with landlords”.
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Headline rents for prime offices are stuck on €670 per sq m since 2022, but inflation has reduced the value of this by 7.3 per cent since then. “So in real terms rents are under pressure even at the top-end of the market,” says Mr McCartney. “Moreover, lease terms are getting shorter, break options are coming earlier and rent-free periods are creeping up, all signs that tenants have the whip hand.”
BNP Paribas Real Estate expects vacancies to continue rising until late next year. Keith O’Neill, its head of office agency, calculates that rates will peak at 16.5 per cent to 17 per cent by the end of 2025. In March this year the bank estimates that 14.5 per cent of Dublin’s offices were empty.
Remote working has hit the market, he points out. However, Mr O’Neill notes that Central Statistics Office figures show the number of people working from home has stabilised while those who are doing so now spend more time in the office.
There are other signs of improved demand. The rate at which businesses have reserved offices in advance rose by 25 per cent in the first three months of this year.
At the same time a post-Covid spike in subletting, which boosted supply, appears to have passed, according to the bank. “Occupiers that were going to sublet space have already done so, and some are now actually withdrawing their grey space,” says Mr O’Neill.
The report also notes that there is an emerging market in repurposing office space for other uses. However, the authors say that to date the bulk of such projects have been turning office space into hotels or education and medical facilities rather than reconfiguring them for residential use.
But tenants will continue to enjoy the upper hand for the next 18 months, he adds, as it is unlikely that the market can absorb the new buildings coming on stream.
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