Ireland is experiencing a significant supply shock in office space, with construction stalling due to a downturn in the commercial property market. Gresham House Ireland, a specialist investment management firm, warns that this could lead to a crisis similar to the housing shortage, as the economy faces a lack of sustainable office buildings in the near future.

Dublin's office lettings and prime rents saw a resurgence in late 2024 after a tumultuous period marked by rising interest rates, increased construction costs, and shifts in work practices post-Covid-19. John Bruder, executive chairman of Gresham House Ireland Real Estate, highlighted the potential consequences of halted construction, emphasizing the urgent need for future-proofed office spaces.

Forecasts indicate that new office completions in Dublin will plummet to one million square feet by 2026, down from 2.1 million in 2024. A significant portion of next year's completions will come from a 459,000-square-foot building being developed by Ronan Group Real Estate for Citigroup's European headquarters.

According to Savills, the vacancy rate in Dublin's prime office hub, Dublin 2, is expected to decrease sharply over the next 12-18 months. This follows a rise in vacancy from 5.7% in 2021 to 15.4% at the end of last year. Prime rents have also increased by about 4%, reaching €65 per square foot, the highest recorded level, marking the first quarterly rise since mid-2022.

Gresham House Ireland Real Estate was formed when UK asset manager Gresham House acquired Burlington Real Estate in 2022. Burlington was established by Bruder and Niall Kavanagh, both former executives of Treasury Holdings, which faced financial difficulties during the last property bubble. Burlington has since managed some of Treasury's former assets.

Despite a robust economic recovery, institutional-grade commercial property values in Ireland remain 25% below pre-Covid levels. Bruder noted that investor sentiment towards Irish commercial property is improving, with yields nearly double those of the 10-year Irish Government bond yield, which is currently around 3%.

Bruder pointed out that Irish commercial property appears undervalued compared to major benchmarks. However, the halt in new office construction persists as property values have not yet surpassed construction costs, indicating that a shift in the market is necessary.