Strong growth in office-based employment is driving the demand for business space in Dublin, according to property consultants, Savills Ireland. 

In its latest commentary on the Dublin market, Savills reports that 57,000 sq m of office lettings were signed in the first three months of 2014 - a 32% increase on last year. 

Dr. John McCartney, Director of Research at Savills Ireland, attributes this to a continued expansion of Ireland’s service economy, with Information and Communications Technology (ICT) and professional services leading the way;

“Ireland has staged a remarkable labour market recovery with over 63,000 additional jobs created in the last two years.  Half of these have been in Dublin and, of these, approximately half have been in ICT and professional services.”

McCartney continued;

“These trends are reflected in the pattern of office take-up, with ICT and professional services firms accounting for almost 55% of Dublin lettings in Q1 2014.”

Another interesting dynamic is that ‘churn’ arising from relocations within the market is increasingly being replaced by net additional demand from new entrants and expansions;

“Gross letting activity held up well during Ireland’s economic crisis.  However much of this was driven by ‘churn’ as occupiers relocated within the market to secure better buildings at lower rents.  However, with the labour market now recovering, demand is increasingly being driven by new entrants and businesses looking to expand”.

According to Savills, this is causing office vacancy rates to fall sharply.  Gross lettings of 184,000 sq m over the last 12 months have translated into net absorption of 128,000 sq m.   Consequently the vacancy rate has come down to 14.5% compared with 18.2% this time last year and a high of almost 24% in 2011.  

However, Roland O’Connell, Director of Offices at Savills, warns that this is leading to a decline in the quality of the office stock that remains available for letting.

“As new entrants and relocating occupiers have gravitated towards the better space that is available in the market, the quality of Dublin’s vacant stock has deteriorated.   Particularly for occupiers seeking large parcels of top-specification space in the prime business locations, choice is becoming increasingly restricted.”

According to Roland O’Connell, this underlines the urgent need for new office development in Dublin;

“Currently there are only two new office schemes under construction.  There is little doubt that the market needs a lot more new construction and / or refurbishment if it is to fulfil the demands of tenants over the next two years.  The scarcity of development finance is proving to be a particular problem in this area, and in the short term it is hard to see how this is going to improve.”

With demand remaining strong and supply fixed for the immediate future, rents are being driven up in the market.  

However, according to Roland O’Connell, while rising rents are welcome, as they make new development viable, the looming shortage of space could lead to a rent spike which is “neither in the interests of either tenants or landlords”.

The full report can be viewed here