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Pinch point in supply evident as Dublin office availability falls to 2002 levels

Take up of office space in Dublin continued at pace in quarter three with the office market on course to record a strong outturn to the year. According to the latest research by Cushman & Wakefield, Dublin office take up reached 62,400 sq m in quarter three, which is in line with previous quarterly activity and 28% ahead of the 10-year quarterly average.

 

Notably, a crucial feature of the Dublin office market at present has been the rapid reduction in the level of immediately available office space. Since the recovery took hold, the rate of take up has been on average 3.4 sq m to every 1 sq m delivered to the market, which has resulted in a significant erosion of supply. 

 

Available supply contracted rapidly in the third quarter to stand at 329,450 sq m, down 31% annually and the lowest level of supply recorded since mid-2002. Furthermore, net of signed and reserved space, the vacancy rate fell to a new low of 5.1% in the three-month period. The situation is even more pronounced in the CBD with just 58,500 sq m net available to the market, corresponding to a record low net vacancy rate of 2.9%.

 

Despite low availability, construction activity continues at pace. In excess of half a million sq m of space was under construction at the end of September. However, more than half of this space was pre-let or reserved at the end of the quarter. The current shortage of available space suggests that pre-leasing will continue as a trend into next year.

 

Commenting on the market, Ronan Corbett, Head of Offices, Cushman & Wakefield: “Demand remains very robust in the Dublin office market despite some concerns surrounding the international and occupier environment. It is evident that good quality space in the best locations is becoming a scarce resource and occupiers are fast moving on it when such space becomes available”.

 

Leasing activity totalled 185,600 sq m in the first nine months of the year, which is marginally ahead of levels witnessed for the same period in 2018. A total of 113,900 sq m of space was occupied in the CBD across the five sub-markets, accounting for 61% of overall take up.

 

The standout transaction of the third quarter was the occupation by the IDA of approximately 10,700 sq m at Three Park Place on Upper Hatch Street in Dublin 2. Other deals which bolstered take up during the quarter included AIB occupying 5,250 sq m at block 2 in Heuston South Quarter, while Google increased its suburban footprint with the occupation of 4,500 sq m at Blackthorn House in Sandyford.  

 

Unsurprisingly, tech companies continue to be the most active sector, accounting for 38% of take up in the year to date. The financial sector followed, absorbing a further 13%. The flexible office sector continues to grow and while a small number of operators continue to dominate the sector, new operators have entered the market in 2019. The sector accounted for 11% of take up in 2019 to date, with the CBD at the forefront of demand from this sector.

 

The large volume of deals signed and pre-let at the end of September suggest that the momentum seen in the year to date is expected to be maintained in the closing quarter. This should result in another strong year for leasing activity, akin to 2018 levels. Annual take up is set to surpass the 240,000 sq m forecasted and comfortably exceed the long run annual average of 159,000 sq m.

 

Prime Dublin CBD office rents remained stable in the quarter, at €673 per sq m.

 

The Dublin Investment market continues to perform strongly, underpinned by solid occupier demand, rental growth and an expanding investor base. Office turnover totalled €989m across 31 deals in the year to September. Notable transactions in the third quarter included the prime office offering of Five Hanover Quay, Dublin 2, acquired by Union Investment for €197m and Nova Atria, Sandyford, secured by Mapletree investments for €165m.

 

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