Office lettings in Dublin fell in the first three months of the year, with the vacancy rate rising to 12.6% and further falls predicted in the second quarter.
New data from BNP Paribas Real Estate (BNPPRE) found just 26,500 sq m of office space was let between January 1st and March 31st.
The slump has been blamed on the retrenchment in the tech sector and the growth in hybrid working.
BNPPRE is now forecasting that the vacancy rate will reach 15%.
The slow level of activity was despite the period usually being a strong part of the year It meant lettings were back close to pandemic-era levels.
However, despite the low level of new space let, the number of deals done was up a little compared to the same period last year.
This is because the average deal size was 44% down.
"The tech slowdown has caused a shift from big multinational tech companies seeking large quantities of space to our traditional baseline of domestic professional and financial services firms, whose space requirements are typically smaller," said Keith O'Neill, Head of Office Agency at BNPPRE.
Supply during the period rose faster than demand, as buildings that were planned pre-Covid were completed.
This pushed vacancies up to 12.6%, while average rents declined by 5.6% compared to the same period in 2022, as a result.
The growth rate on prime headline rents did continue to grow, but by a lower rate than previously, with the expectation that it will come to a halt in the coming months.
"Despite the weaker headline numbers we are actually seeing quite a lot of activity on the ground, particularly in that 500 – 1,000 sq m range, and occupiers are responding positively to better value in the market," said Mr O’Neill.
"Fully fitted options are preferential as occupiers look to avoid significant capital expenditure on carrying out new office fit outs."
"That said, we are also seeing evidence of landlords offering attractive incentive packages where office suites are not fitted or in need of full refurbishment."
Mr O’Neill also indicated that the outlook for the later part of the year may be brighter, with reserved space increasing 14%.
