Dublin Office Market Overview - With Special Focus: Impact of Covid-19 Research, Q1 2020 - Knight Frank
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Occupier Trends Investment Trends Market Outlook
Dublin Office
knightfrank.com/research
Market Overview
Research, Q1 2020
With Special Focus: Impact of Covid-19
DUBLIN OFFICE MARKET OVERVIEW Q1 2020 DUBLIN OFFICE MARKET OVERVIEW Q1 2020
Q1 OVERVIEW
Teams over the last year, the company remaining two schemes delivered in Q1 disposed of Classon House – which they
has the noteworthy distinction of having were 61 Thomas Street and 42 Westland purchased in 2016 for €20.4 million – to
Summary
a higher stock price at the end of Q1 Row which consist of 13,000 sq ft and Corum for €29.3 million, while KanAm
than at the start and before the Covid-19 11,000 sq ft respectively. bought One Hatch Street from a private
Strong opening start to 2020 masks the severe disruption
turmoil disrupted financial markets. European investor for €35.1 million.
to the real estate market that is currently being caused by the
1. 817,000 sq ft was let in what Other notable deals included Guidewire’s INVESTMENT MARKET
outbreak of Covid-19 Although outside of the top five
was the second strongest taking of 85,000 sq ft at Stemple
€363.9 million worth of Dublin office transactions, another high-profile
opening quarter ever Exchange, Blanchardstown Corporate
investments changed hands in Q1, asset to re-trade was Phoenix House
Park, Google’s taking of 75,000 sq ft at
OCCUPIER MARKET Facebook and Google having led the way representing a 34% increase in comparison which was sold to UK-based SW3 for
Block I, Central Park and Zalando’s taking
2. The vacancy rate declined in this regard. One South County was to the same period last year. The largest €16.0 million, having been acquired by
817,000 sq ft of office space transacted of 48,000 sq ft at 2WML.
to 6.5%, down from 7.0% a completed last year while Two South transaction was Google’s purchase of Henley Bartra for €8.3 million in 2018.
in Dublin in Q1 in what was the second
quarter earlier County is a pre-letting which will be In terms of location, 42% of occupier the Treasury Building for €115.5 million. It is noteworthy that Blocks 4 and 5 of
strongest opening quarter on record,
completed in 2022. activity occurred in the City Centre, Google has expanded its footprint in the Harcourt Centre, Classon House
only behind Q1 last year when 1.4
marginally ahead of the South Suburbs Dublin considerably such that it now and Phoenix House were all acquired
3. The TMT sector was the main million sq ft was let. The vacancy rate The second largest deal was Slack’s
on 41%. The West Suburbs and the North stands at just over one million sq ft, and and re-traded within the last four
driver of activity, comprising fell to 6.5% from 7.0% at the end of Q4 pre-letting of 135,000 sq ft at Fitzwilliam
Suburbs accounted for 15% and 2% of while the Treasury Building is presently years, underlining the high liquidity of
91% of the entire space let while the vacancy rate in the city centre 28, with delivery of the redeveloped
the market respectively. We are holding leased to a number of tenants, it will the market in recent years. While the
declined to 5.0% from 5.3% previously. former ESB headquarters expected
prime benchmark rents at €62.50 psf eventually provide Google with additional indications in the early stages of Q1 were
later this year. Slack provides internal
4. €363.9 million worth of office Occupier activity was driven firmly by although risks remain on the downside to space for its future growth in Dublin. that yields were beginning to tighten, we
communication software for enterprises
investments changed hands the TMT sector which accounted for this given the current environment. now believe it is prudent to continue to
and, although it has been facing European purchasers targeted office
in Q1 91% of the market. The largest hold the prime yield benchmark at 4.0%.
increasing competition from Microsoft assets in Dublin in a considerable way in
transaction was Mastercard’s taking DEVELOPMENT
Q1, comprising 55% of investor activity
of 249,000 sq ft at One and Two South MARKET
5. Real estate markets across – ahead of buyers from the United States
County Business Park.
the globe hit by Covid-19 Fig 2. Prime office rents Four projects were completed in Q1 and Ireland which accounted for 32% and Fig 4. Dublin prime office yields
€ per sq ft per annum
exogenous shock Mastercard is the epitome of the delivering 104,000 sq ft to the market. 8% of the market respectively. In addition,
8%
€80
transition made by many financial The largest of these was Davy Real European buyers also purchased four of 7%
€70
companies towards the technology Estate’s 45 Mespil Road which comprises the five largest assets that traded during 6%
€60
sector, with One and Two South 47,000 sq ft, followed by Block D, Q1. AXA IM – Real Assets, in conjunction 5%
€50
4%
County incorporating a new European €40 Charlemont Exchange which extends to with local partners BCP Capital, purchased
3%
Technology Hub which will develop the €30 32,000 sq ft and marks the completion La Touche House from Credit Suisse for
2%
company’s capabilities in areas such €20 of the redevelopment of Charlemont €84.3 million. Elsewhere, Arena Invest –
1%
€10
as artificial intelligence, cyber security Exchange which now totals 123,000 sq who made their first acquisition in Dublin 0%
€0
and blockchain. The campus style ft. Blocks A, B and C were completed in in Q1 – paid €54.0 million for Blocks 4
2006
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Q1 2020
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development is also in tune with recent 2018 by Marlet – the scheme's previous and 5 of the Harcourt Centre which were
trends seen within the technology sector Source: Knight Frank Research owners – before being sold to Vestas originally acquired by Ares and Avestus for Source: Knight Frank Research
in Dublin with Microsoft, LinkedIn, Investment Management in 2019. The €47.0 million in 2017. Ares and Avestus also
TOP 5 OFFICE LEASING TRANSACTIONS TOP 5 OFFICE INVESTMENT TRANSACTIONS
Fig 1. Office take-up Fig 3. Dublin office
Sq ft PROPERTY TENANT SECTOR
SIZE investment volumes PROPERTY SELLER BUYER
A P P ROX .
(SQ FT) PRICE
4,000,000 €3,500m
One & Two South County Jayfield Ltd and
Mastercard TMT 249,164 The Treasury Building, Dublin 2 Google €115.5m
3,500,000 Business Park, Dublin 18 €3,000m
Percy Nominees
3,000,000
€2,500m AXA IM - Real Assets/
Fitzwilliam 28, Dublin 2 Slack TMT 134,656 La Touche House, Dublin 1 Credit Suisse €84.3m
2,500,000 BCP Capital
€2,000m
2,000,000
Stemple Exchange, Blanchards- Blocks 4 & 5, Harcourt Centre,
Guidewire TMT 85,000 €1,500m Avestus/Ares Arena Invest €54.0m
1,500,000 town Corporate Park, Dublin 15 Dublin 2
1,000,000 €1,000m
Block I, Central Park, Dublin 18 Google TMT 75,294 One Hatch Street, Dublin 2 Private European KanAm €35.1m
500,000 €500m
0 €0 Classon House, Dundrum
2WML, Dublin 2 Zalando TMT 47,562 Avestus/Ares Corum €29.3m
Business Park, Dublin 14
2013
2015
2016
2018
2019
Q1 2020
2014
2017
2013
2015
2016
2018
2019
Q1 2020
2014
2017
Source: Knight Frank Research Source: Knight Frank Research Source: Knight Frank Research Source: Knight Frank Research
2 3
DUBLIN OFFICE MARKET OVERVIEW Q1 2020 DUBLIN OFFICE MARKET OVERVIEW Q1 2020
TOP LETTINGS, INVESTMENTS AND DEVELOPMENTS IN Q1
R
D
PE
OA
RR
UP
ULA
ET
RC
LL
PO
HI
RE
CI
ER
RT
H
ST
M
RT
L
UM
AN
ET
NO
S
D
RS
RO
MA
DO
W
N
OR
ETE
ST
TR
RE
SS
N HILL
La Touche House CONNOLLY
ET
IEN
STATION
Yield: 5.31%
GAR
AM
UT I O
Price: €84,250,000
DIN
Purchaser: AXA IM –
O’CO
The Bloodstone Building
S TIT
ER
Real Assets/BCP Capital
STR
Rent: €52.00 psf
NNEL
CON
Take-up: 8,683 sq ft
EET
T
CH EE Tenant: Knotel
L STR
TR
LOW
ES SHERIFF ST
TE LL S REET UPPE Sector: Coworking
RF NE HENRY R
PAR
EET
ER
IEL STREET
PHOENIX DA
EAST WALL ROAD
L
VE
HALL P
PARK THE
STREET
CONVENTION
SMITHFIELD CENTRE
CONYNGHAM ROAD
BLACK
AY
N QU
QUEEN
3ARENA
ED E Stack B
HEUSTON Yield: 4.18%
S QUAY
STATION R GE CITY Price: €16,000,000
GE O QUAY
VICTORIA QUAY Purchaser: Trinity College Dublin
ARR
AN Q
USH UAY
ER’S
QUA QUAY 78 Sir John Rogerson's Quay
Y WOOD
PASS Rent: €53.00 psf
D BYPhoenix House
LIZO Ashford House Take-up: 36,954 sq ft
B RID E S
E Yield: 5.75% GRAND CANAL
AP Rent: €45.00 psf ENERGY THEATRE Tenant: Salesforce
CH Price: €16,000,000
G
Purchaser: SW3 Take-up: 8,389 sq ft Sector: TMT
TR Tenant: Knotel TRINITY COLLEGE PEA Note: Sublease
EE DUBLIN R SE S
THOM T Sector: Coworking
AS S T RE E 2WML
SOUTH CIR CULAR
TRE T
ET Rent: Stepped rent rising from
T
PATRICK STREE
€56.50 psf (2nd Floor) to
EET
42 Westland Row
€61.00 psf (5th floor)
STR
ES
ET
Take-up: 47,562 sq ft
M 61 Thomas Street GRAFTON
ST
JA Type: Redevelopment
N STRE
STREET Tenant: Zalando
ARE
Type: Redevelopment Owner: James & Patrick Dooley
E
ROAD Sector: TMT
AN
NHAM Owner: Oakmount Space Delivered: 11,431 sq ft
KILD
OLD KIL MAI EL One Park Place
BO N
ROAD
DAWSO
ROW Space Delivered: 13,000 sq ft
AR Rent: N/A GOVERNMENT
M MO GR
Take-up: 42,893 sq ft BUILDINGS AN
UN
Tenant: Dropbox TS D
KEV
IN S TR CA The Treasury Building
TRE Sector: TMT EE NA
TL L Yield: 4.32%
R
ET ST STEPHEN’S OW ST
WE
UPP L OW Price: €115,470,000
ER GREEN BAG ER ER
LO
GOT Purchaser: Google
T
ST L
L ST REE
ST
OW Fitzwilliam 28 UE
ET
CUFFE ST ER BATH AVEN
IAM
RE Rent: €56.00 psf
ST
ILL
RK Take-up: 134,656 sq ft
RASSI
CO
ZW
CE
Tenant: Slack
DO
RA
FIT
NO
SOU Sector: TMT
B
TH
TER
RE
AN
CIR
LE
CUL
AV
Hambledon House
CL
AR AVIVA STADIUM
ORT
ES
EN
ROA RD
NO
CAMDEN STREET
Rent: €45.00 psf ON
ON
D
UE
DO T
LSF
ING
SHELB
Block 4 & 5, Harcourt Centre
RTH
LP Take-up: 5,704 sq ft
DD
ST
HIN
EAR
RO Yield: 5.09% Tenant: Kane Tuohy HA
LO
UM
AD HATCH ST Sector: Professional Services
Price: €54,000,000 REE T
WE
OURN
BER
Purchaser: Arena Invest
R
LAN
E ROAD
One Hatch Street 45 Mespil Road
DR
L OWE
Type: Refurbishment
CH
Yield: 4.01%
OA
The Harcourt Buildings Owner: Davy Real Estate
AR
Price: €35,100,000
D
KEY
R
Rent: €59.00 psf Space Delivered: 47,456 sq ft
LE
Purchaser: KanAm
M
Take-up: 14,236 sq ft
ON
Tenant: Nuance Communications
UE
T
LETTINGS
ST
Sector: TMT
N
St James House 45 Mespil Road
AVE
INVESTMENTS Note: Sublease
LE
RA
Rent: €48.00 psf Rent: N/A
DEVELOPMENTS Block D, Charlemont Exchange ES
T I NE
NE
Take-up: 9,141 sq ft O Take-up: 8,041 sq ft
DART RAIL LINE Type: Refurbishment N
LA G
Tenant: SEI Investments ST Tenant: Ellucian
EN
Owner: Vestas Investment Management UP
LUAS TRAM LINE Sector: Finance Sector: TMT
PE
H RO
RP
Space Delivered: 31,684 sq ft
Note: Sublease R
SE
LUAS TRAM LINE
AD
4 5
DUBLIN OFFICE MARKET OVERVIEW Q1 2020 DUBLIN OFFICE MARKET OVERVIEW Q1 2020
SPECIAL FOCUS: the financial markets may be much investors meaning competition for such one or two days a week. Overall, however,
IMPACT OF C OVID -19
further along the road to recovery which assets that are brought to the market for we believe that the current crisis has
would insulate real estate from much sale will remain strong. In recent years, underlined the value of the office as a
of the volatility. Nevertheless, if equity the main source of prime investment place of collaboration and socialisation
prices remain significantly below where product has been new builds. However, for employers and employees.
CONTEXT WHAT IS DRIVING 8.3% contraction in GDP in 2020, but that they were when we entered this crisis, we with construction halted, the supply Companies have long learned that real
THE VOLATILITY? is predicated on containment restrictions may see rebalancing activity as the large of opportunities will dwindle which estate is a key business infrastructure
The global spread of Covid-19 in Q1 lasting three months which is at the lower multi-asset portfolio managers seek to will support values for standing assets. for driving productivity that more than
Uncertainty regarding how long
ignited huge volatility in the world’s bound of the likely impact. Even under dispose of some their real estate holdings Given the pressure on corporate debt outweighs the direct real estate cost.
economic restrictions are likely to
financial markets with the CBOE that scenario, the deficit as a percentage in order to keep their portfolio exposure that is emerging and the importance of
remain in place is the key factor driving We have seen predictions of technology
Volatility Index, also known as the of GNI* will reach 10.7% in 2020. at the targeted risk-return level. tenant liquidity in weathering the current
current market volatility. Currently, heralding the demise of the office
VIX, recording its highest ever level uncertainty, investment grade tenants
there is a wide range of estimates among The early stages of this crisis saw However, it is worth remembering that before. Back in the 1990’s, it was
in March. with continued access to capital markets
market participants regarding how long sovereign yields across Europe spike Dublin’s office investor base is extremely predicted that the introduction of the
will be especially valued. The yield spread
The Dow Jones fell by 23.2% in the present lockdown will last. Without before the ECB stepped in with a €750 well diversified internationally with the internet and email to the work place
between prime assets with long unexpired
Q1, making it the worst quarterly a consensus regarding a timeline back billion Pandemic Emergency Purchase resulting pooling of risk increasing the would lead to companies moving to
terms and riskier strategies with active
performance since 1987 and the worst Q1 to normality, it is very hard to assess Programme. The question of how the market’s resilience. Much of the capital cheaper suburban offices as the need
management will widen further.
on record while the Irish stock market the full impact and reliably underwrite emergency response to Covid-19 will be that has invested in the Dublin office for face-to-face communication would
(ISEQ) fell by 28.4%. The price of crude the risk associated with assets. Global paid for has not gone away however, and sector is long-term stable income focused be negated. However, it was discovered
IMPACT ON THE
oil fell by two thirds making it the worst volatility is likely to remain elevated for is a topic that is likely to come to the fore and well capitalised to weather short- that the more people communicated
OFFICE MARKET
ever quarterly performance with March some time but will reduce as a path out in European politics when the medical term fluctuations in the market. While using technology, the more they wanted
also having the distinction of being the of the crisis becomes clearer. emergency wanes. This could have wider rents may be adversely affected, this is Some feel that the office sector is uniquely to meet-up in person, which resulted in
Zoom RingCentral Slack Docusign S&P 500 Index
worst monthly performance on record. implications for the bloc's future. mitigated somewhat by the increasing exposed to the Covid-19 crisis as it has the reversion of occupier demand to city
In Ireland’s case, we can turn to 250.0
The global indirect property market was use of capped/collar and indexed rent turbo charged the secular trend towards
230.0
centre locations, especially from tech
comments made recently by Dr. Cillian
not spared, with the S&P Global REIT IMPACT ON THE reviews, although the majority are still remote Headline
210.0working with detrimental companies themselves.
De Gascun, who is the Chair of the
INVESTMENT MARKET Subtitle
190.0
benchmark falling by 29.6%. open market reviews. Furthermore, talk consequences for the office market.
Covid-19 Expert Advisory Group to TMT – 91% 170.0
150.0 we can see in Fig. 8 theLabel
In the same way, demand for physical
of late cycle investing was dominating Indeed, gains that
These swings in the financial the Health Service Executive. When Evidence from publically traded real Finance – 4% 130.0 61% offices will remain despite the
the market and many were positioning remote
110.0 working stocks have made in Q1,
environment will obviously have asked whether twelve weeks was an estate companies, both domestically Coworking – 2% 90.0
Label experiment in remote working that
their portfolio for end of cycle risks and going against the overall decline
11%seen in
significant ramifications for the Dublin optimistic timeline for the Government’s and abroad, would suggest that there Medical – 2%
taking a more defensive stance even
70.0
the S&P 500.
50.0
we are all undertaking at this time. It
Label
office occupier and investment markets. COVID-19 Income Support Scheme to will be a material impact on prices in Other – 1%
before Covid-19 arrived. 29%
is also why Slack, one of the leading
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Less obvious is what those ramifications last, he suggested a three to six month the direct property investment market. While we do envisage an increase in remote providers of remote working software,
TMT Pharma
will be. Nevertheless, in this special period would be more realistic. For their In practice, however, we are unlikely to Looking ahead, much of the stock of working, we see it complementing rather expanded into 135,000 sq ft of new
State Coworking
Source: Data source
focus, we give our initial views on what is part, The Central Bank of Ireland have see transactions take place until we are prime assets in Dublin have already than replacingOther
Finance office space with employees office space at Fitzwilliam 28 in what
a fast and continually evolving situation. released a provisional estimate for a emerging from this crisis at which point been purchased by long-term core Professional services
given greater flexibility to work remotely was the second largest deal of Q1.
Fig 5. Volatility Index Fig 6. Q1 Performance of REITs globally Fig 7. Dublin office buyers by Fig 8. Remote working stocks South Suburbs 45%
origin 2013 - Q1 2020
90 Zoom RingCentral Slack City Centre 30%
Docusign S&P 500 Index
-17.7% Singapore West Surburbs 9%
US Ireland UK US 250 Europe UK
80
-19.8% Hong Kong Europe REIT Asia Ireland REIT Asia
230
70 -20.9% Germany
210
60 -28.0% Canada 9% 9%
-28.2% Asia Pacific 190
50 23% 23%
-28.4% UK 13% 13%
170
40
-29.8% US 150
30 -34.7% Europe 130
20 -36.3% Spain 110
-36.8% France 16% 16%
10
20% 20%
90
-39.5% Italy
0 70
-40.4% Australia
18% 18%
2005
2009
2006
2007
2008
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
50
-45% -40% -35% -30% -25% -20% -15% -10% -5% 0%
Jan 2020 Feb 2020 Mar 2020
Source: CBOE Volatility Index Source: Various Source: Knight Frank Research Source: S&P
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2020 — 14TH EDITION
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