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The strong performance of Dublin’s office market over the past two years has led some landlords to overlook the city’s traditional SME occupiers.
Near record levels of 1.75 million sq ft of take up for the year-to-date spells good news for landlords and vindicates the recent spate of speculative office development, but it’s putting pressure on a market where space remains in short supply.
Recent big ticket pre-lets to tech/creative/digital (TCD) occupiers such as Salesforce, LinkedIn and co-working giant WeWork have inevitably dominated the headlines and market chatter, yet it is actually the SME (sub-5,000 sq ft) market that makes up the majority of deal numbers and is perhaps a better barometer of where we really are. Dublin’s development market has naturally become skewed towards the larger occupiers while the city’s backbone of SME type professional and financial services firms are getting left behind in landlords’ flight to bulky lettings.
The squeeze on the SME market is a direct result of high volume of pre-lets during the first half of 2019. Whereas in the past, landlords have been happy to pre-let 50% of space and let-up the remainder upon completion, more recently they have been holding out to secure a single tenant – and generally succeeding. This has resulted in a lack of Grade A city centre space being made available to smaller occupiers.
Some observers would argue that this gap in the market will be filled by the serviced office/co-working sector, although I have my doubts over the true level of demand. While this model is undoubtedly here to stay and fulfils the requirements for start-ups, over-flow and short-term project space, I believe it applies less to the core SME market. Many of these businesses are well established with strong brand identities and simply want the kudos of having their name above the door. To that end, I question whether there is genuinely a market in Dublin for large scale serviced office/co-working to the extent that they can justify occupying entire buildings in the long term.
As a tenant rep adviser, I may be accused of bias, but I am on the receiving end of feedback that implies there genuinely is a finite limit to the rents these occupiers can realistically bear. Most will be generally happy to accept CBD rents of up to €50 per sq ft for the best space but, beyond that, they will almost certainly begin to look at alternatives such as more suburban locations and lower grade space.
They are also frustrated with the quoting headline rent jargon used amongst office agents, particularly when the dealing rent is typically lower. We need to start to listen to them and promote sustainable rental levels. No one is paying €65 per sq ft which is touted as the Prime Grade A quoting rent in the CBD. It’s time to get real on rents.
Landlords can hardly be blamed for taking advantage of the prevailing market conditions, but they would be short sighted to fully ignore the SME lifeblood of the city’s occupational market. We know that the large TCD occupiers are famously footloose whereas we have an enduring base of professional and financial services occupiers. Finding a way of accommodating both types of occupier will be key to achieving sustainable growth and avoiding the boom and bust of previous cycles.