A new report has warned of a possible two-tier office market emerging in Dublin as occupiers shun older office space.

The latest research from BNP Paribas Ireland found that activity in the first quarter of 2022 was 50% down on the last quarter of 2021, with a total of 491K SF taken up between January and the end of March.

Two major deals which did complete in the quarter were An Post's 79K SF at The Exo Building and Finserve's 69K SF at 10 Hanover Quay.

BNP Paribas said that the impact of the coronavirus and the war in Ukraine meant that occupiers were proceeding "cautiously," hesitating over long-term commitments, which benefits flexible office operators such as Iconic. BNP stated that take-up is unlikely to reach its 10-year average, which stands at approximately 2.6M SF, in 2022.

BNP also warned that the Dublin office market had developed a distinct two-tier market, with rents for older buildings "under pressure" from increased vacancy rates.

"Rents are rising at the top of the market, propelled by the demand for modern, sustainable buildings and the scarcity of such properties." BNP Paribas Real Estate Ireland Director and Head Of Research John McCartney said.

"However, increased vacancy has subtracted from competition in the second tier, leading to more tenant-friendly terms for older offices. This will continue to put pressure on the returns generated by older buildings."

BNP also noted evidence that average lease lengths had continued to decline, falling from just over eight years in 2021 to just over six years from data taken for Q1 of 2022.

The number of deals completed during the quarter in Dublin’s city centre stood at 32, with a further 12 in the suburbs. The highest deal by value was €60 per SF for One Park Place, Hatch Street in Dublin 2.