Given that many in the property industry predict that demand for office space in Dublin will likely outstrip supply over the next two years, what can companies do to beat the squeeze on space and lessen the impact of rising rents on their cost base?
Aoife Brennan, a director at Lisney, says more companies are engaging in short-term measures to better use the space they already occupy.
“This could be achieved by re-fitting accommodation in a more efficient manner,” she says, “such as reducing desk size and introducing hot desking.”
Ms Brennan cites the recent example of PwC, which adjusted its office layout and working practices and achieved a 4,000sq m space saving at its Spencer Dock premises.
Other firms, which took leases on more space than they currently require in order to accommodate anticipated future growth, may be tempted to sublease excess space to take advantage of the strong rental market.
“Workday and Stripe both recently took more space than they required with the expectation of growing into it eventually,” says Ms Brennan. “Until expansion occurs, they are subletting additional accommodation.”
Workday is subletting 2,320sq m near Smithfield in Dublin 7, while Stripe is subletting 1,670sq m at The One Building in Silicon Docks, she says.
Dropbox took a similar approach in 2015 but has since lowered its forecasts, Ms Brennan says. In the first quarter of 2016, it sublet 2,790sq m of space at Park Place on Hatch Street to Slack.
Longer leases vs growth flexibility
Subleasing much smaller amounts of space than the previous examples is also a growing trend in the capital’s office market. Ms Brennan points to a “dichotomy between landlords’ expectations for longer leases and young, expanding companies seeking flexibility to allow growth”.
She points to a significant submarket demand in Dublin for shorter, flexible leases of fully fitted space, perhaps on a sublease.
“Serviced offices are capitalising on this and offer a temporary solution for companies wanting to ‘beat the squeeze’,” she adds. “This is a more expensive option, but it does offer flexibility.”
Hannah Dwyer, associate director and head of research at JLL, also cities a strong demand for premium accommodations that offer early lease breaks.
“The requirement for temporary space could come from a need to find interim accommodation whilst a building is being constructed or refurbished,” Ms Dwyer says, “and it could also come from an occupier who is unsure of their future growth.
“This is a common trend for SME tech occupiers, particularly start-ups, whose initial requirements will be for a small amount of space, but could then quickly evolve into a larger requirement. They want shorter-term leases so that they can have flexibility and the ability to respond quickly to their growth and expansion.”
Near-sourcing now here
So-called “near-sourcing” may also be used by some companies. This is where large firms based in the city centre locate certain office functions to cheaper suburban locations while maintaining smaller offices in the city centre.
Last year, for example, Mason Hayes & Curran took space on Ringsend Road and Google at Eastpoint.
Near-sourcing is a relatively common practice in the UK. "The BBC's move to Salford in Manchester or legal firms such as Allen & Overy and Herbert Smith opening support offices in Belfast could be seen as examples of this," Ms Brennan says.
Ms Dwyer notes “some creativity from city centre occupiers in response to limited choice”. She cites options such as “swing space” being considered until supply comes to the market.
Swing space is typically occupied on a temporary basis in buildings undergoing renovation, albeit in areas away from where refurbishment is taking place. It can be in new space built before renovations or existing space that has already been renovated.
“With supply shortages in the city centre,” says Ms Dywer, “occupiers are becoming more creative in their property decisions. This includes the use of swing space, with occupiers looking to lease space on a shorter-term basis.”
