Google abandoning a new Dublin office signals change for the commercial property markets

Google signage.

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When Google announced last month it was pulling the plug on a lease for a new office space in Dublin, Ireland, it set off alarm bells.

Google is a large presence in Dublin's "Silicon Docks," where it holds its European headquarters, a part of the city around the docklands area where a who's who of Big Tech are located, including Facebook, Twitter and Airbnb.

But during the coronavirus pandemic and with the need for remote working, questions are being raised about the viability of large office spaces. Google said it remains committed to Dublin — where it has over 8,000 workers — and has purchased two more buildings that it still plans to fill.

The commercial property market in Dublin slumped in the second quarter as the country was in the depths of lockdown, according to real estate firm CBRE, which reported just 15 office leasing transactions in that period.

Marie Hunt, head of research at CBRE, told CNBC there is likely to be a slowdown in new office deals in the coming months because of Covid-19, but also because "tech occupiers tend to retrench in a presidential year."

Government agencies have been unable to carry out site visits and tours to woo companies to invest, and Hunt said this was causing a "weakening in take up."

Shane Fleming, a property expert and the founder of Fleming Real Estate, said that this trend is not unique to Dublin but that the Irish capital still has several large office deals signed and in progress, pointing to ongoing expansions by Amazon and LinkedIn. 

TikTok, according to reports, is seeking a large office space in the capital for up to 5,000 people.

Fleming added that housing shortages for workers in the city as well as planning policies around building heights present additional challenges. "If Dublin City Council does not allow for increased heights within parts of the city, Dublin will lose out on future opportunities," he said.

The Sorting Office that Google was planning to lease in Dublin, Ireland.

Google Dublin Sorting Office

Efficiency

Simon McEvoy, the Irish boss of shared office provider Knotel, said that it makes no sense for companies to invest in any new spaces until they can bring back a significant number of workers.

"It's not always viable to turn on a large facility for 10% of your workforce," he said, adding that workers may experience and use their office space in different ways in the future.

"It's not necessarily going to be where you go from 9 a.m. to 5 p.m., Monday to Friday, but they will be going in for various different reasons at different times. How the office is delivered to the end user is where a lot of the change is going to happen."

Carol Tallon, chief executive of Property District, which advises clients in the property and construction sectors, told CNBC that office tenants can often be "exceptionally inefficient" in how they use their spaces.

There will need to be a significant re-think in how space is utilized, she said.

"How we use the office is going to change as a result of this pandemic and I don't think it's fatalistic to say that now," she added.

Controlled development?

CBRE's Hunt highlighted a difference between the property market currently and what it was like during the 2008 financial crisis.

"There was plenty of funding available in the run up to the global financial crisis. A lot of the office development in Dublin was being built speculatively," she said.

When the crash happened and purse strings tightened, that left many offices vacant. In recent years, development has been more controlled with developers securing tenants before building. 

"It's not as stark from a supply perspective," Hunt said. "It means there's limited brand new buildings that are empty, waiting for a tenant. For that reason, there might be some softening in the office (market) but it's not going to be anywhere near the level of softening we saw in the last cycle."

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