A note on the economy, jobs growth and underwriting demand for office space in Dublin

The Irish Government raised money at its lowest ever rate today, with the NTMA sourcing €500 million of 12 month debt at a negative interest rate of 0.43%. The low rate is reflective of the appetite for Irish investment assets as the economy continues to grow at a robust pace, with the ESRI projecting that the economy will grow by 3.5% in 2017. As the economy expands, new office space is required in order to house new jobs. We at Knight Frank have previously looked at providing a reasonable basis with which to measure the demand for new office space and to provide a yard stick with which to benchmark the new construction office pipeline against.

The table above is taken from our Q3 2015 report which estimated the ongoing new office requirement at two million square feet per annum.

Ireland employment forecast – Although it is jobs growth in Dublin we are interested in, we start with the national level data as employment forecasts by the ESRI, The Department of Finance and The EU Commission are made at the state level. Our calculations underwrote job creation levels of 50,000 per annum which was approximately in-line with the ESRI’s forecast for job creation of 51,000 in 2016. However, job creation was far greater than expected with 65,100 new jobs created last year, surpassing expectations by 30%.

Dublin employment forecast – With Dublin accounting for 53% and 52% of new jobs in Ireland job in 2014 and 2015 respectively, our calculations assumed that half of new jobs going forward would be created in Dublin. However, the Dublin share was much lower than estimated for with the capital accounting for just 30% of new jobs created in Ireland.

Taking the Dublin employment figure and assuming that half of the jobs to be created will be white collar jobs (as outlined by state body Solas in the ‘Recovery Scenario’ contained in their report ‘Occupational Employment Projections 2020’) we see that 9,750 office jobs were estimated to have been created in 2016, which was below the 12,500 forecasted. Converting this figure into office space, and accounting for obsolescence of the existing stock, we see that overall demand for new space was 1.65 million square feet last year according to this methodology.

With just 1.5 million square feet worth of office space delivered in 2016, the decline of Dublin’s share of total job creation in Ireland may be attributed to the lack of suitable available office stock for employers to house new workers. In effect, the lack of office space in the capital may now be acting as a brake on job creation in Dublin. With almost 3 million square feet of new office space due to be delivered to the market in 2017, it will be interesting to note whether we will see a corresponding rise in Dublin’s share of employment numbers once again this year as a greater amount of space becomes available for occupation.

Knight Frank

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