It looks like a commercial property crash is looming for Dublin – The Irish Times

It’s the crash that dare not speak its name: the obsolescence of offices across Dublin city. Vacancy in Irish office buildings is set to hit 17 per cent this year, but that headline figure tells only part of the story.

According to Savills’ Dublin Office Market research report, in the first half of 2023, the take-up of office space in Dublin dropped 30 per cent compared with the same period in 2022. Also according to Savills, in the first quarter of 2023, European office take-up fell 14 per cent below the five-year Q1 average.

Dublin’s equivalent drop was 62 per cent. Between Q1 2021 and Q1 2023, the level of office stock in Dublin increased by 8 per cent, but the amount of tenant space available for sublet rose 150 per cent.

In Dublin, “grey space” – surplus office space leased but vacant – accounts for 36 per cent of all available supply. Actual functioning offices are also experiencing vacancy. Back in February, research by Savills and the Dublin Chamber of Commerce showed Dublin office occupancy rates were between zero and 10 per cent on Mondays and Fridays, 51-60 per cent on Tuesdays and Thursdays, peaking at 61-70 per cent occupancy on Wednesdays.

This is not an Irish phenomenon. It’s particularly acute in San Francisco (where vacancy grew from about 4 per cent pre-pandemic to 31.8 per cent now), and Manhattan (22.4 per cent). Office blocks in Manhattan are being offloaded at knock-down prices.

Distressed asset sales in the office market are now mirroring what happened to American malls. Some buildings are selling for less than the value of the land they’re on. A massive office block on Avenue of the Americas last year sold for $320 million (€297 million). In 2006, it was bought for almost $500 million.

The age of buildings is crucial. Contemporary office blocks with massive floor plates, and essentially hermetically sealed by glass, are rarely viable

Like many expensive cities, New York City – where I am writing from – has a housing crisis. The potential for converting office blocks to housing became buzzy during the pandemic. It sounds obvious: a glut of empty office buildings, plus a housing shortage, equals a novel development opportunity. But what does that really look like?

On Water Street in Manhattan’s Financial District, a brutalist 1960s brick building looms. This used to be the headquarters of the New York Daily News and a JPMorgan office. Now, it’s the largest office-to-residential development project in America; 1,300 apartments will be created within it, most with home offices. Building dust from the project merges with the sawdust that spills out from the floor of the Dead Rabbit pub across the street.

A development at 25 Water Street is seen by many as “the model” for this pandemic-induced luxury real estate phenomenon. If developers can make the case for its profitability, surely more will follow.

But it’s not that simple. The age of buildings is crucial. Contemporary office blocks with massive floor plates, and essentially hermetically sealed by glass, are rarely viable. The development at 25 Water Street will scoop out parts of the building to create internal courtyards for light and ventilation. It’s also not necessarily the kind of housing the city needs most acutely. For councilman Justin Brannan, who sponsored a bill that established a taskforce of experts to appraise the viability of conversions, costly conversions mean expensive apartments.

“Where there’s a will there’s a way,” Brannan told me last week, “Architecturally, it can be done. The issue is it’s expensive to do. Ostensibly, any building can be converted into residential, but it might end up costing so much you might be better knocking a building down and building a new one.” From Brannan’s perspective, “the challenge now is how do we incentivise these conversions to produce housing that people can actually afford”.

In Dublin, vacancy rates are also being driven by speculative developments without tenants in place coming on stream. According to a market briefing for investors by Lisney cited by the Business Post, just 29 per cent of office stock currently under construction has been pre-let. The Clerys Quarter development on O’Connell Street is advertising office space on Instagram. The redevelopment of the Central Bank building on Dame Street, Central Plaza, initially cited WeWork as renting nine floors of its building. But WeWork is imploding (again), with Wall Street funds exploring a possible bankruptcy filing.

The reality is, if Manhattan can’t keep its offices afloat, nowhere can. Last month, New York City Mayor Eric Adams announced his intention to produce 20,000 homes within a decade from empty office buildings, saying, “It makes no sense to allow office buildings to sit empty while New Yorkers struggle to find housing.”

Dublin city urgently needs a cohesive strategy to tackle office vacancy. In Park West, an office complex has been converted to social housing. Social housing in industrial estates on Dublin’s outskirts will do little to revitalise city life. Returning Georgian buildings to housing and incentivising companies to leave buildings with conversion potential for new, purpose-built office blocks, and creating affordable housing within older buildings, where practical, makes more sense.

It’s autumn 2023. If office workers were going to return en masse, five days a week, that would be our reality, and it’s not. The last thing Dublin city needs is a commercial property crash. But the figures are telling a story. It looks like one is coming.