Q 2 2022
FIGURE 4: AVERAGE OFFICE-SPACE-PER-EMPLOYEE INDEX, DUBLIN 1
MARKET DEMAND
Office demand is ultimately a function of the number of desk-based jobs, and the amount of space assigned to each employee. FIGURE 3: DESK-BASED EMPLOYMENT AND OCCUPIED OFFICE SPACE: DUBLIN
105
100
350
5.0
95
4.5
300
90
4.0
85
250
3.5
3.0
80
150
2.5
2.0
100
1 The space-per-employee ratio is computed as the tenanted stock divided by total employment in the Dublin NUTS 3 region, in the following sectors; TMT (NACE group J), Professional Services (M), Admin Services (N), Public Admin (O), Finance, Insurance and Real Estate (K,L). On this basis the average space per employee in Q2 2022 was 12.6 sq m. This quantum should be considered indicative for two reasons. Firstly, the methodological approach assumes all jobs in the named sectors are desk-based, and that no desk-based jobs exist outside of these sectors. This is clearly a simplification. Secondly, the Labour Force Survey, which provides our employment data, assigns employees to regions based on place of residence rather than place of work. Therefore employees who work in Dublin but live in surrounding counties are excluded. Notwithstanding these limitations, the approach is consistent over time, and the data are presented in index form to emphasise the trend rather than the absolute quantum of space assigned.
Source: CSO and BNPPRE *Q2 Labour Force Survey employment figure due 25th August 2022. Interim estimate based on more timely monthly data from the CSO’s employee series from administrative data.
Employment
Occupied Space
war in the Ukraine, have made organisations more cautious, and less certain about their long term business space requirements. Protem, this may be making them less willing to commit to more office space, resulting in declining space-per-employee ratios as extra staff are onboarded. A further unresolved question is whether organisations will use hybrid working to rationalise their office space – a strategy that would also reduce the space-per-employee ratio. In reality, it is too early to say how this will play-out as many firms are still in the process of developing their remote working strategies. Indeed, the first evidence of any structural change is likely to emerge outside Ireland, in locations where shorter leases provide earlier opportunities for occupiers to recalibrate their business space holdings. What we can say for now is that agents are experiencing a continued gradual improvement in market activity, but are reporting that deals are taking longer to complete and that occupiers are advancing cautiously due to the factors outlined above.
Dublin's labour market has enjoyed a strong rebound with 37,500 desk-based jobs created between January 2021 and June 2022, an increase of 14.1%. Office leasing has benefited, with 243,269 sq m being taken in the same period. However, as shown in Figure 3, the increase in tenanted office space (+2.9%) has lagged behind the rebound in employment. This reflects a 9.8% decline in the average allocation of office space per employee (Figure 4). The disconnect between jobs growth and office leasing may be just a timing issue; Theory suggests a natural lag between organisations hiring workers and taking-on additional business space, simply because it takes time to locate and acquire appropriate space – particularly where ESG criteria are being targeted. In this context the recent surge in service sector employment augurs well for continued improvements in office leasing and absorption in the coming quarters. However accumulating macro risks, including rising interest rates, slowing economic growth, stock market volatility, continued Covid outbreaks and
SUPPLY AND VACANCY
they relocate, and due to the take-up of grey space which is already tenanted. In net terms, therefore, supply has outstripped demand nudging the overall vacancy rate from 10% last December to 11.4% at the mid-year point.
Over 130,000 sq m of new office space was completed in Dublin in the first six months of 2022. Most of this was let-up prior to, or shortly after completion, reflecting occupier demand for well- located, environmentally sustainable offices - and the relative scarcity of these buildings. On the demand side, 91,290 sq m of space was leased in H1. As usual, however, absorption was lower due to some organisations leaving vacancy behind when
RENTS
Strong occupier demand for new, ESG compliant offices, and the relative scarcity of these within the overall stock, has led to headline rents for the best buildings being bid up strongly. Prime headline rents have risen to €673 per sq m per annum – an uplift
of 6.8% year-on-year. However, rising vacancy is keeping rents for less prime buildings in check, and average headline rents in the city centre remain in line with or marginally below their pre-Covid levels.
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