Take-up in Europe fell by 23 per cent year-on-year in the first quarter of 2023. However, the decline in Dublin was 41 per cent. The importance of the information and communication technology sector in Dublin’s occupier mix helps to explain this.
Last year was the biggest one for Dublin office completions since the global financial crisis, with more than 200,000sq m of new space delivered A similar amount is likely this year, before the development pipeline eases considerably in 2024. These supply/demand dynamics mean that Dublin’s office stock is currently expanding faster than space can be consumed, causing vacancy to rise. In fact, over the past 12 months, Dublin’s office vacancy rate has risen faster than in all but one of the 39 European office markets in the above table.
The price they are willing to pay for these future cashflows depends on several factors. The “risk-free rate of return” sets a lower bound. If investors can earn 3 per cent per year from low-risk, interest-bearing bonds, their expected return on office investments must exceed this. This premium is required to compensate for the illiquidity and additional risks associated with property – including risks that affect the certainty of future rental incomes.