Office markets are facing a generational challenge. The property industry’s response has been to ration information and fill the vacuum with reassuring narratives. These are standard tactics to buy time, but the underlying issues are structural and won’t go away.
When faced with a downturn, the commercial property industry traditionally engages in positive narrative framing. This approach is understandable, and it often works. One reason is that the industry itself controls the data.
Official statistics on residential property have become much more widely available since the 2008 financial crisis. However, this transparency has not yet reached the commercial sector. The industry can pick and choose what information to share.
A second reason is the inherently cyclical nature of commercial property. Even in a downswing, a recovery is generally not too far away. With full control of the data, it is often quite manageable to maintain a positive front until the market turns and genuine good news can be reported.
Dublin’s office market has been operating at a much slower pace since the onset of Covid in March 2020. As we might expect in the circumstances, the property industry has become more guarded about sharing information that might expose the full extent of this.
It has been noted elsewhere that the terms of key office market deals are increasingly being kept confidential by the parties involved. Estate agents have also become coy. Some have stopped regularly publishing Dublin office market reports on their websites. Others have erected barriers so that access to their reports can be regulated.
And those that have continued to provide open access are tending to share less information. To illustrate, one recent report never even mentioned vacancy – the most basic indicator in any analyst’s toolbox.
If the quantity of information has been pared back, there are also concerns about the quality. I have previously argued that estate agents’ claims of plunging office vacancy in Dublin are difficult to reconcile with the quantum and composition of reported lettings.
Further concerns relate to the inclusion of non-office buildings in reported office take-up, and to the ways in which new development completions are being accounted for.
If step one in the playbook for surviving a commercial property downswing is to control the information flow, step two is to fill the resulting vacuum with reassuring narratives. Prominent narratives in the current market are that there is strong demand for energy-efficient office space, vacancy in older buildings does not impact on prime rents, vigorous rental growth is just around the corner and the modest office development pipeline is a big positive.
None of these things is really true, but that is beside the point. The purpose of these narratives is simply to buy time until demand recovers and the market cycle turns.
The trouble is that Dublin’s office market is not in a cyclical downswing. In fact, it is more likely to be at a peak. Unlike housing demand, which is underpinned by demography, office demand follows the economic cycle.
Since 2022, Ireland’s labour market has been close to full employment while real GDP growth has averaged more than 5 per cent annually. The economy has been booming. The fact that Dublin’s office market has underperformed in this context reflects a structural loss of demand.
Remote working and retrenchment in the tech sector have fundamentally, and perhaps permanently, subtracted from the amount of office space that is required at any given level of economic activity.
The recent CSO Labour Force Survey hammers this home. Some 46 per cent of employees in Dublin now regularly work from home. This compares with a pre-Covid average of 14 per cent.
Contrary to the heavily promoted narrative that a strong back-to-the-office dynamic is emerging, the proportion working from home has actually been creeping up since early 2023. Dublin now has 48,000 more remote workers than it did three years ago.
Technology companies accounted for more than half of Dublin’s office take-up during the market’s 2017-20 heyday. At that time, however, tech employment was expanding by more than 6 per cent annually. Today it is contracting by 11 per cent.
Experienced practitioners understand that office markets are inherently cyclical. By comparing current activity with pre-pandemic levels, I think many have concluded that we are in a cyclical trough that just has to be managed before the fruits of an upswing can be enjoyed again.
They are half right. The market is indeed cyclical. But we are at the top of the cycle, not at the bottom. Remote working and the tech pullback have created a new normal in which today’s peaks feel like troughs of the past.
[ Brave new world of remote working in rural areas yet to materialiseOpens in new window ]
Given the booming economy of recent years, a slowdown was always inevitable and there are now clear signs that economic activity is slowing. This will subtract further from office demand. The industry should be planning for tougher times ahead rather than an imminent market recovery.
John McCartney lectures in property economics in TU Dublin and is an adjunct associate professor at UCD
