City Versus Suburbs: The Battle For The Soul Of Dublin’s Office Market
Over the last few years Dublin has experienced record office take up. Most of that has been in the city, including the docklands area.
The office hot spots have changed over the years from the traditional core city centre district, focusing on the Georgian townhouses and more modern office blocks of Dublin 2 and Dublin 4; shifting to the docklands area when tech companies decided to make Dublin their European home.
The question is, where will most of the offices needed to meet current demand be built in the future, in the city or in the suburbs?
According to experts in the industry, supply is controlled and the development pipeline is strong.
In 2017 alone there was 3M SF in take up, and 3.7M SF of offices are under construction for delivery between now and 2020. Almost a third (30%) of this has already been pre-let.
HWBC Managing Director Tony Waters said the office market will have a good balance between supply and demand in the next couple of years. “Take up is keeping pace with construction," he said. "I think there is a fair balance between what is being built and the demand out there.”
Some believe it might not be enough to keep up with demand.
“The reality is that Dublin had no new office delivery for almost a decade and there is a strong level of latent demand from growing foreign direct investment and local occupiers to meet the current development pipeline, which has significant pre-lets,” Kennedy Wilson Chief Operating Officer Peter Collins said.
“Last year’s list of the top deals completed in Dublin showed a good mix of local and FDI companies, all of whom have been growing their existing Dublin businesses over a number of years.”
Hibernia REIT Chief Investment Officer Richard Ball thinks that delivery of office space is delayed because of funding. "The lack of development funding in the market is delaying the supply-side as some owners of sites require significant pre-lets before they can commence development."
Earlier this month Google signed a lease with Kennedy Wilson for 59.2K SF in Sandymount and Microsoft opened its new HQ in Leopardstown. Traditionally, Google has always occupied space in the grand canal area in the heart of the docklands. This move indicates a need for space that the city centre may not be able to deliver.
Ball believes the future of the office market in Dublin will be in the suburbs. “Our analysis indicates that supply in the suburbs of Dublin will outpace the delivery in core city centre locations over the next number of years. This is in large part due to the limited development opportunities in the city centre when compared with the suburbs."
"Quality sites with opportunities for sizeable developments within city centre locations will remain relatively scarce, particularly in the traditional core and South Docks," Ball said. "Assuming favourable market conditions persist we continue to expect the majority of the supply for Dublin as a whole to be focused on the suburbs and fringe locations around the city centre core.”
The huge demand for space from tech companies is also making it harder for Irish companies to get office space in the central business district, resulting in many looking to the suburbs for space of 20K SF and upwards, according to Waters.
“We see more scope for development in the likes of Sandyford in the next two years to satisfy that demand because there is so much pressure in the CBD," he said.
“I think you’ll see some developments in outlying Dublin 4 postal addresses like Elm Park, we’ll also see further refurbishment works in locations such as Bellefield by Donnybrook,” HWBC Director Paul Scannel said. “That will help the market because it will give more diversity and choice to occupiers.”
The allure of the suburbs has increased since the extension of the green line into south Dublin and the construction of the cross city luas making it easier for workers to travel from the north to the south.
“Public transport is going to be key factor in determining which locations benefit the most,” Collins acknowledged, but he said a dual strategy is being pursued by a lot of occupiers. “There is a clear trend for many of Dublin’s larger occupiers to aim for a dual location strategy, driven not only by cost — rents in the prime suburbs are 50% of the city centre — but also to meet the needs of their staff, many of whom would prefer for lifestyle and family reasons to be in a suburban location.”
However, JLL Head of Offices Deirdre Costello said that the future of the office market still lies predominantly in the city. “There is still plenty of development opportunity in the city centre” around the north docklands and traditional D2 areas, she said, but she agreed the demand is there for space in the suburbs.
It remains to be seen who will emerge the champion of the Dublin office market but the lack of immediately available space in the city coupled with the on-going demand from both FDI companies and Irish companies might tip the balance in the suburbs' favour.