Dublin office market activity to increase in H2 2021
Technology firms were, once again, the most active sector in Dublin’s office market in 2020, with information and communications technology (ICT) accounting for the year’s top ten deals and 70 per cent of take-up last year, despite much talk about a migration from offices.
This is according to the latest Office Market in Minutes from Savills Ireland released today. The report found that although general employment has fallen, the share of office-based employment has stayed relatively steady, which bodes well for the future.
The failings of the final Brexit deal for financial services were also found to offer some opportunity to the Dublin office market, with firms that had, to date, only made a foothold presence in Dublin, now making moves to scale up their operations.
John Ring, Director of Research at Savills Ireland, says: “Despite the fall in employment, the office sector has proven more resilient to the Covid-19 shock than other sectors of the economy. Looking at the statistics from the Pandemic Unemployment Payment we can see that, despite accounting for more than one-quarter of Ireland’s jobs, the office-based sectors accounted for just 15 per cent of those on the PUP.
"The vaccination program too is representing light at the end of the tunnel albeit slower than the market would have wished for. If successful, the path back to the office in a significant way could be underway by the second half of the year.”
Andrew Cunningham, Director of Offices at Savills Ireland, says: “While we have always been conservative concerning the quantum of occupier relocations arising from Brexit, we are likely to see an increase in transitions to Dublin and our agency have seen some examples. Many in coworking locations, such as WeWork – having awaited the result of the Brexit negotiations, are looking to increase their Dublin presence over the coming quarters. Some big names in the new generation of tech and fintech are also now landing”.
Savills contend that there is no basis for a media narrative that has dominated this year, which is a possible shift away from the Central Business District (CBD) towards suburban offices.
Cunningham says: “There is no evidence of this, with the CBD’s share of take-up standing at 63 per cernt in Q4 2020. This demonstrates that real estate costs are not the driving metric for businesses and is evidence against the narrative that corporates will shed office space to save costs”.
Experts at Savills say they are confident that a shift to a hybrid model of working dynamics, where workers do some of their work from home, won’t necessarily translate into a significant office footprint reduction, once firms allow for surge capacity for the “popular days” and office space is adapted to facilitate lower density, collaborative workspaces in the office.
Cunningham says: “The post-Christmas lockdown has certainly been a greater challenge than the previous lockdowns and anecdotally, many companies tell us that teams and people are strained and the mood is swinging towards optionality and choice to work from the home and the office so they can meet colleagues, collaborate and socialise. The upsides of remote working were immediate, but the downsides have been slower to manifest, with impact from a lack of mentoring (including learning on the job) and constraints on virtual onboarding of new staff now becoming more apparent.
Even within the tech sector, where firms have possibly the greatest ability to facilitate distributed workforces, we have not seen changes to fit-out plans and applications for consent from large tech occupiers indicating that firms intended to stall plans for parts of their new on-site buildings”.
The findings from the Savills report conclude that take-up of office space will be reduced in the first half of the year but emerging new demand and reserved tallies will start to rise (they already are) as many occupiers maintain their wait-and-see approach in the face of uncertainties around the final trajectory of the virus. Once vaccinations reach meaningful levels, Savills expect execution of deals into contracted take-up to scale up.
Cunningham says: “If and when Covid ceases to be a relevant biohazard, many firms who would otherwise have leased space over the past nine months may begin to look for suitable space and pent-up demand could release. As such we would expect to see take-up rise in the second half of the year after a lacklustre first half.
"Flexibility will be a key factor for tenants in the short term. Smaller office sizes and fitted solutions will be more in demand in the short-term as is typical after a shock, but we expect larger longer-term requirements to resume as the year progresses. Such longer term requirements will likely focus on buildings with strong environmental credentials and maximised accessibility, on the presumption that public transport together with commutes on foot or by bicycle with their carbon reduction and health benefits will resume and increase.”