Dublin Office Market Overview - With Special Focus: The Office: Still the Future of the Workplace - Knight Frank
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Occupier Trends Investment Trends Market Outlook
Dublin Office
knightfrank.com/research
Market Overview
Research, Q2 2020
With Special Focus: The Office: Still the Future of the Workplace
DUBLIN OFFICE MARKET OVERVIEW Q2 2020 DUBLIN OFFICE MARKET OVERVIEW Q2 2020
Q2 OVERVIEW
House. The letting of 8,200 sq ft to Amryt attractive destination for equity-driven
DEVELOPMENT MARKET
Pharma at 45 Mespil Road also brought institutional capital.
Summary
Pharma’s share of the market to 10%. With sites closed for much of Q2,
In what was the largest investment of Q2,
Occupier activity was focused on the City just 127,000 sq ft was delivered while
While investment volumes remained resilient in Q2, Covid-19 had a large GLL purchased Bishop’s Square from
Centre which accounted for 88% of take- upcoming delivery timelines are likely
negative impact on take-up levels with just 83,000 sq ft transacting Hines for €183.0 million with the transaction
1. Knowledge workers have up followed by the Fringe and the West to be stretched as measures introduced
representing a net initial yield of 3.97%.
been the least impacted Suburbs with 7% and 5% respectively. to mitigate the spread of Covid-19 will
income support compared to just 10% The deal represents a significant premium
segment of the labour market ECONOMY slow construction. Completed buildings
for the Information and Communication The main factor constraining take-up in Q2 for Hines who acquired Bishop’s Square
so far consisted of Two Dublin Airport Central
The Covid-19 pandemic had an Technology sector. This suggests that was the logistical challenge of getting deals for €92.0 million from King Street Capital
(117,000 sq ft) and Block B, Dublin Airport
unprecedented impact on the domestic knowledge workers have been the least completed during the lockdown with a in 2015. Elsewhere, IPUT achieved sole
Business Park (10,000 sq ft). Among
2. Just 83,000 sq ft transacted and international economy in Q2, as affected by the pandemic which bodes well number of deals that would have otherwise ownership of Riverside One by purchasing
the few projects to start in Q2 were Two
in Q2, the largest deal being extraordinary public health measures for the resilience of the office market. The completed in Q2 now due to sign in Q3. Aviva’s 29.2% share of the building for €37.5
Grand Parade (115,000 sq ft) which was
3M’s letting of 23,900 sq ft severely curtailed economic activity. With virus of course represents a more existential Beyond the expected completion of these million at a net initial yield of 4.03%. IPUT
purchased by Union Investment from
at 2 Cumberland Place the economy now opening up on a phased challenge to the office sector through a deals, take-up for the remainder of the year already owned a 70.8% share of Riverside
Hines, while Deutsche Bank commenced
basis, the path of economic growth will potential structural shift to greater working will depend on economic confidence going One which they purchased from Harcourt
their refurbishment of One Haddington
largely depend on the timeline to a vaccine from home and this topic is addressed in the forward. In total, there is over 700,000 Life for €80.5 million in 2015. Some notable
3. 127,000 sq ft of newly Buildings (42,000 sq ft).
Sectoral Distribution of stock
completed office Covid-19
was Supports
and how close to capacity the economy can Special Focus section of this report. sq ft reserved but it remains to be seen transactions still completed in fringe and
operate under social distancing restrictions how much of this will translate into suburban locations as Blocks C and D,
added in Q2 as lockdown hit INVESTMENT MARKET
until that goal is achieved. Regarding the OCCUPIER MARKET take-up. Looking at rents, there is likely Parkgate Business Park were purchased
new supply
timeline for the former, expectations are to be a softening of incentives rather than €257.5 million worth of office by a private Irish investor for €19.5 million
Just 83,000 sq ft of office space was let in
highly optimistic in this respect with 177 headline rents in the short-term which investments changed hands in Dublin for a net initial yield of 5.17%, while Corum
Q2, bringing take-up for the first half of the
4. €257.5 million worth of vaccines currently in development – of reflects the tight supply landscape with during Q2 bringing volumes for the first acquired Blackthorn House for €17.5 million
year to 900,000 sq ft, which is just over half
investments transacted in which 37 are already in human trials – with 45% and 59% of this year’s and next year’s half of the year to €621.4 million, 17% from Irish Life with the deal representing a
the level witnessed during the same period
Q2, driven by the purchase of capital markets pricing-in the development development pipeline already pre-let. ahead of the same period last year. net initial yield of 6.73%. In total, European
in 2019. The vacancy rate stood at 7.3% at
Bishop’s Square by GLL from of one by Q1 2021. Despite the pandemic uncertainty, it purchasers comprised 78% of the market
the end of Q2, up from 6.5% in Q1 and from
Hines for €183.0 million demonstrates robust liquidity in the Dublin with Irish buyers accounting for the
The labour market impact of the pandemic 6.4% in Q2 2019. TMT accounted for 60% Fig 3. Dublin prime office yields
and rents office market which continues to act as an remaining 22%.
has been considerable so far, with the of activity, with the pre-letting of 23,900
5. While functioning better than European Commission’s Summer Economic sq ft at 2 Cumberland Place by 3M Digital Yields (LHS) Rents (RHS)
many expected, working from Forecast projecting Ireland’s unemployment Science Community being the largest deal 8% €80
7% €70 VA C C I N E S I N
home is a poor substitute for rate to rise to 7.5% this year, before reverting of the quarter, while Unity Technologies
DEVELOPMENT
1
6% €60
the office workplace to pre-Covid levels by the end of 2021. The sub-let 7,600 sq ft from Dillion Eustace at 5%
4%
€50
€40
B Y S TA G E
PUP TWSS % of the Labour Force worst affected sector so far has been the 33 Sir John Rogerson’s Quay. Finance and 3% €30
4 PHASE III
Accommodation and Food Services sector, Professional Services accounted for the 2% €20
1% €10
with 83% of those employed receiving next highest sector shares with 19% and
0% €0 APPROVED VACCINES IN LARGE-SCALE
EFFICACY TESTS
10% respectively as Vanguard took 6,200
2013
2015
2016
2018
2019
H1 2020
2014
2017
13
VACCINE APPROVED
tion sq ft at Georges Quay Plaza, while Dentons FOR LIMITED USE
Fig 1. Sectoral distribution of Covid-19 supports
sub-let 4,200 sq ft from Nuritas at Joshua Source: Knight Frank Research
PUP (LHS) TWSS (LHS) % of the sector’s labour force receiving Covid-19 supports (RHS)
160,000 90% PHASE II
VACCINES IN EXPANDED
19 PHASE I
VACCINES TESTING
140,000
OFFICE BASED
80%
Fig 2. Office take-up Fig 4. Dublin office SAFETY AND DOSAGE
SAFETY TRIALS
140+
EMPLOYMENT 70% Sq ft investment volumes
Number of recipients
120,000
60%
100,000
50% 4,000,000 €3,500m
80,000
PRECLINICAL
40% 3,500,000
€3,000m
60,000 3,000,000
30% €2,500m
40,000
VACCINES NOT YET IN
20% 2,500,000
€2,000m HUMAN TRIALS
20,000 10% 2,000,000
€1,500m
0 0% 1,500,000
€1,000m
1,000,000
500,000 €500m
0 €0
2013
2015
2016
2018
2019
H1 2020
2014
2017
2013
2015
2016
2018
2019
H1 2020
2014
2017
Source: New York Times
Source: CSO Source: Knight Frank Research Source: Knight Frank Research Coronavirus Vaccine Tracker
2 3
DUBLIN OFFICE MARKET OVERVIEW Q2 2020 DUBLIN OFFICE MARKET OVERVIEW Q2 2020
SPECIAL FOCUS:
THE OFFICE: STILL THE
FUTURE OF THE WORKPLACE
INTRODUCTION office is an integral asset to a company’s the short-term, the majority of occupiers loneliness and depression arising from
10%
success in today’s knowledge economy. we talk to do not see it as a long-term the extended period of working remotely. FA C E B O O K ’ S P L A N S F O R
WORKING FROM HOME
The Covid-19 pandemic has raised a
OTHER
To understand why office working out- solution to their business needs.
number of interesting questions as to Notwithstanding, WFH is a potential
performs WFH, we examine the pros and
10%
the virus’ longer-term structural impact avenue for those whose jobs are
on society, perhaps none more so than
cons of each mode of working.
CTRIP STUDY largely independent, such as sales, A number of tech companies have All going well, Facebook aims to
those relating to the future of work. OFFICE RENT or for completing specific tasks that announced that they will be keeping attract new staff for WFH who wouldn’t
Many have predicted that the pandemic WORKING FROM HOME Perhaps the most widely cited study
require sustained periods of quiet WFH practises beyond the pandemic otherwise want to work in a big city
on WFH was undertaken by the National
80%
will result in the death of the office, to concentration, such as report writing. period. Facebook have even given but are close enough to be within a
Despite initial reservations from Bureau of Economic Research in the
be replaced by Working From Home Leading organisational psychologist an initial overview of their plans four-hour drive of an existing company
companies, WFH has been a largely United States. Call center workers from
(WFH) on a permanent basis, even after Adam Grant argues that periods of for WFH via a recent employee virtual office – a qualification that would
effective way for office-based businesses CTrip – a €14 billion NASDAQ listed
a vaccine has been produced. However, STAFF
to keep going through lockdown. Chinese travel service company – who
intense and focused concentration town hall event hosted by Mark certainly encompass the majority of
proclamations heralding the demise of on a specific task can yield the Zuckerberg. The talk provided some Ireland if Dublin were to be included
Borne out of necessity, it worked better volunteered to WFH were randomly
the office have been made as far back as highest productivity benefits. If some interesting insights into what shape as being the centre of such a hub.
than many anticipated with digital assigned to either WFH or from the
the 1970’s and were proved wrong each employees find they can achieve deep WFH practises may take for big The catch for employees looking to
collaboration tools such as Slack, Teams office over a nine-month period.
time. We believe this time will be no focus WFH, it may prove an efficient companies such as Facebook, WFH is that their salaries would be
and Zoom helping to streamline the The results found that performance
different and explore why the modern way for them to complete certain tasks. of which up to 95% of staff have adjusted to reflect the cheaper cost of
transition. While it has been a success in increased by 13% amongst the WFH
been WFH during the pandemic. living outside of major cities – whether
group, with 9% of this attributable to
more time spent WFH than in the WHY COMPANIES Employees at Facebook will be able
potential WFH employees would be
office, while 4% was attributed to INVEST IN OFFICES to apply to WFH if they meet the
willing to accept this trade-off remains
to be seen.
T YPICAL COST BREAKD OWN greater productivity due to a quieter below four minimum criteria:
To understand why companies invest in
FOR AN OFFICE OCCUPIER working environment. Crucially, Zuckerberg said Facebook
offices one must first examine the cost-
eed to be an experienced,
N remains committed to retaining its
Despite these initial positive benefit trade-off that an employer faces. 1
relatively senior member existing office footprint, which makes
implications for WFH, there are a A common rule of thumb used in the real of staff sense for a company that recently
number of other factors to consider. estate industry is that salaries generally
spent over $1 billion developing
10%
The call centre work at CTrip was account for 80% of a company’s cost igh ratings on recent
H
2 its headquarters in Menlo Park in
particularly suited to WFH as it required base with the remaining 20% split evenly performance reviews
OTHER neither teamwork nor face-to-face between real estate and other costs.
California and includes the largest
open floor plan in the world. Facebook
interactions. In addition, the company Human capital is therefore easily the 3 eed to be on a team that
N
supports remote working say their plans for exploring greater
10% had robust systems for monitoring
performance remotely which allowed
most expensive resource for a company,
and explains why companies focus on
WFH comes not from a cost saving
OFFICE RENT eed to have their team
N motivation, nor is it necessarily an
them to supervise employees even maximising the return on the 80% staff 4
leader’s approval employee-led demand, rather they
at a distance. Crucially, those who outlay rather than on cutting the 10%
believe its part of their responsibility to
80%
volunteered to WFH were only allowed real estate costs, by implementing WFH
So, far from being an option for be leading innovation in such areas. A
to do so if they had a home office – no for example.
everyone, Facebook are initially factor not mentioned, but one that may
working from bedrooms or kitchen
STAFF tables for example – while employees
The role of the office in maximising limiting WFH to its best employees, be playing a role in this, is the fact that
labour productivity is well established, presumably because they can trust Facebook stand to benefit from the rise
were required to be in the office once
albeit the research findings are them to work independently and also of remote working having developed
every five days so that some in-person
continually evolving. Knowledge because they’re already embedded in ‘Workplace’, a platform they've
engagement was maintained. At the end
workers add-value in the way they the company’s culture from working established that could potentially
of the nine months of the study, just
collect, analyse and disseminate in Facebook’s office environment. challenge Slack and Microsoft Teams.
half of the WFH volunteers requested
information, with the office environment
to stay WFH, citing feelings of isolation,
4 5
DUBLIN OFFICE MARKET OVERVIEW Q2 2020 DUBLIN OFFICE MARKET OVERVIEW Q2 2020
increasing the efficiency of this process for informal meetings and quiet rooms in 2010 to 70% in 2019, despite rents Notwithstanding, going forward an Ultimately, the office – as venues for
by enabling face-to-face collaboration for focused individual work, while also increasing over the period, while the element of WFH will become more face-to-face collaboration – will retain
and learning. abolishing fixed desks so as to further suburbs saw a corresponding drop prevalent than before the pandemic. its position as the place where workers
increase random knowledge collisions from approximately 30% to 20% (the The stigma associated with WFH has are most efficient and thus remain a
The modern open office plan came
between workers. city fringe market accounting for the been removed now that employers cornerstone of the modern knowledge
about as a method of maximising the
balance). The office market trend and employees have had the chance to based economy. Commenting on the
‘water cooler’ effect, a reference to The office also plays a role in fulfilling
therefore has been for companies experience its benefits for themselves. WFH phenomenon in the context
the informal collaboration that took the human desire for socialisation,
to invest more rather than less in The type of work one is engaged in of the Covid-19 pandemic, Nicolas
place at the water cooler during which helping foster a sense of belonging
their office space, something which is critically important, with work Bloom – one of the authors of the
workers shared information and solved and purpose. As a result, the office
proponents of WFH based on cost that requires deep concentration CTrip study cited earlier in this
uu problems. The open plan layout was has become a key point on which
savings miss. This reflects the – completing a report for example – research – concluded that current
an effort to replicate this effect more companies compete for talent. This is
The office market trend relatively small contribution of the potentially being more suited to WFH. Covid-19 WFH arrangements will
widely by getting workers out of their particularly true of the tech industry,
has been for companies office to overall costs (10%) and its While quiet spaces have been developed create ‘a productivity disaster for
partitioned silos, boosting informal where millennials dominate, with
to invest more rather crucial role in maximising the return for focused work in the modern office, firms’ and fears that the ‘collapse in
interactions and thus productivity. health and wellness benefits such as
than less on their office on labour, the chief cost (80%). the WFH option will appeal to those that office face-time will lead to a slump
gyms becoming more common place.
space, something which Over the last decade, however, there can avoid the commute and perhaps in innovation’. Overall, therefore,
Offices are also crucial in transmitting It helps explain why companies such
proponents of WFH based has been some evidence that open improve their work-life balance. WFH will be a poor substitute for
corporate culture so that the aims and as IBM and Yahoo, who previously
on cost savings miss plan layouts can hurt productivity, ‘Flexibility’ has been a buzz word in work that requires collaboration –
values of the corporation are aligned implemented WFH on a large scale,
uu with distractions making it difficult the office sector for some time now and which comprises the majority of work
with its employees. subsequently rolled back on the practice
to concentrate depending on the a wider adoption of WFH is a natural undertaken in an office – however,
as their performance lagged their tech
task you are doing. To address Like many global cities, Dublin has continuation of that trend. it will play a role in undertaking
peers such as Google and Microsoft,
this, contemporary office designs seen a resurgence in city centre office certain types of tasks while also acting
who made the office an integral part of However, it is worth considering that
increasingly implement the concept of demand over the last decade. As as an incentive for attracting and
their respective strategies’. employee demand for WFH may drop
flexibility, which incorporates design illustrated in Figure 5, the city centre's retaining talent.
when offices are back running as
features to compliment the open plan share of Dublin’s office take-up has
normal again. This is because staff
structure to include breakout spaces increased from approximately 50% OUTLOOK who WFH can be overlooked when it
comes to promotions, suffering from
uu
Knowledge workers in today’s modern
the out of sight, out of mind effect. This Knowledge workers in
economy are hyperconnected, both
doesn’t come into consideration in the today’s modern economy
digitally and physically. While
current environment with the majority are hyperconnected, both
some predicted that technological
digitally and physically
Flexibility
of staff WFH, but will return as a factor
advancements would result in
post-Covid. uu
remote work replacing the office, the
importance of physical proximity has
only increased as digital collaboration
Fig 5. Share of Dublin take-up by location
has proliferated. Trends in office
design reflect this change as we moved City Centre share Suburban share
FLEXIBILITY HAS BEEN A BUZZ WORD IN THE OFFICE SECTOR FOR SOME TIME
from partitioned silos to open-plan
NOW AND A WIDER ADOPTION OF WFH IS A CONTINUATION OF THAT TREND 80%
layouts that maximise face-to-face
70%
interactions within companies. Inter-
60%
company face-to-face interactions
50%
have also risen, as evidenced by the
growing preference for city centre 40%
office locations versus the suburbs. 30%
While the Covid-19 pandemic has 20%
interrupted this trend towards greater
10%
face-to-face interaction, we believe
0%
that WFH will prove to have been a
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
temporary workplace solution borne
out of necessity rather than a long- Source: Knight Frank
term shift.
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