Introduction
To the passer-by, it is difficult not to notice the sheer number of cranes in the sky and the enormous new office developments currently underway or already completed in Dublin City Centre. According to HWBC, there is now 3.6 million square feet of office space under construction in Dublin, all due to be complete by the end of 2025. While this is an enormous amount of space, its scale could possibly be justified by pointing to the fact that newly developed offices are usually occupied by big tech companies, such as Google. However, in 2023 the tech sector accounted for just 25 per cent of office market activity, which is down from a peak of 60 per cent in 2018. Dublin’s heavy reliance on big tech companies to drive demand and occupy newly developed offices has left it caught in the firing line as large-scale employers, such as Meta, Amazon, and Google have trimmed their headcount of Irish employees. BNP Paribas Real Estate has estimated that a recovery in commercial property demand before 2027 is unlikely to happen, and with 16 per cent of commercial property in Dublin vacant, it is worrying to see that new office builds are not going to stop any time soon.
The Problem
In February 2024, The Business Post reported that Dublin would require an additional 78,000 jobs to fill the oversupply of 250,000 square metres of office space in the city. To put this into context, this is the equivalent of 62 acres or 34 football pitches. It was further reported that three-fifths of the office space under construction in Dublin has no future tenants lined up. This amount of job growth is simply unrealistic. Comparatively, this is 1,000 jobs in excess of what New York City Mayor Eric Adams has optimistically predicted for one of the largest cities in the world.
“This amount of job growth is simply unrealistic. Comparatively, this is 1,000 jobs in excess of what New York City Mayor Eric Adams has optimistically predicted for one of the largest cities in the world.”
It is clear that the relationship between the employment rate and office demand is weakening. The Irish Census of 2022 recorded a 173 per cent increase in the number of employees working from home since 2016, with almost a third of workers – 750,000 – working from home at least one day a week. Those who are optimistic about an uptake in occupancy of commercial property in Dublin may argue that the pandemic is the reason for the amount of vacant offices, arguing that the vacancy rate will gradually fall in years to come. However, research conducted by Savills and the Dublin Chamber of Commerce show that in 2023, Dublin office occupancy rates were between 0 and 10 per cent on Mondays and Fridays, 51-60 per cent on Tuesdays and Thursdays, peaking at 61-70 per cent occupancy on Wednesdays. This raises the question that if workers were going to return to the office, would it not have happened by now? This is not an exclusively Irish problem. It is also evident in the United States. For example, in San Francisco, the office vacancy rate has grown from about 4 per cent pre-pandemic to 35.6 per cent today, and in Manhattan, office vacancy stands at 22.7 per cent.
“The outlook is bleak.”
Sustainability Rules – A Solution within the Problem?
The current Irish vacancy rate looks even more worrying given that some of Dublin’s most prestigious older commercial properties are struggling to find tenants. The architecturally impressive Central Bank, newly developed into the Central Plaza on Dame Street, was initially occupied by WeWork, who have since filed for bankruptcy. The Clerys Quarter development on O’Connell Street is even advertising office space on Instagram. The outlook is bleak. If important and prominent commercial properties cannot be occupied, it is uncertain how other less renowned and pristine properties will be. This is especially true regarding mid-20th century office buildings. Many companies are seeking to move from their older offices to newer builds due to more pressing sustainability rules.
In fact, Environmental, Social, and Governance (ESG) and sustainability rules are the reason there is any demand at all for newly developed sites. Consequently, many 20th century office buildings are being vacated and will never be viable for office use again, with tenants favouring the better energy ratings of newer builds. In Dublin 2 alone, there are 234 commercial properties that have been vacant for more than 4 years. Previously, owners would have demolished these buildings. However, as environmental policies shift away from permitting the demolition of older buildings, and the demand for more city office space has declined, there lies an opportunity to make use of these buildings, instead of leaving them to waste.
“…many 20th century office buildings are being vacated and will never be viable for office use again, with tenants favouring the better energy ratings of newer builds.”
The United States and Canada have developed an interesting solution of turning older and vacant offices into housing to help solve their own housing crises. In downtown Calgary, Canada, the current office vacancy rate sits at 32 per cent. To address this issue, the city has been offering owners of empty office buildings a grant of $75 per square foot to convert their property to residential use, provided they meet specified criteria. This programme has seen the city eliminate over 500,000 square feet of vacant office space. On Water Street in Manhattan’s Financial District, a brutalist 1960s office building was notably empty. This was the former headquarters of the New York Daily News and an office of JPMorgan. Now, it is the largest office-to-residential development project in the US, with 1,300 apartments being created, most coming with home offices. However, it is not a simple task to convert old offices into new apartments. There must be suitable amenities, accessibility, ventilation, and fireproofing. Yet, with leases expiring in 2025, these kinds of projects give opportunities to landlords.
Conclusions
At first glance, the commercial vacancy rate in Ireland, combined with the seemingly endless list of offices being built may cause great alarm. However, it is likely that these new builds will eventually be occupied when companies start to feel the heat around sustainability turn up. The process of moving companies out of older offices can be sped up with an incentive scheme similar to that applied in Calgary. Preferably, this would vacate the mid-20th century builds but also some of Dublin’s Georgian buildings, which were originally purpose built for housing, making them well-suited for conversion. This would certainly revitalise the city, which currently emits the impression of a monolithic commercial zone, and would also encourage the growth of retail and small businesses. However, unless push comes to shove, the commercial vacancy rate will only increase in the coming years.
By Oisín Moore
All ideas, beliefs, and opinions presented are those of the author and not necessarily those of The Eagle.
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