A new reports shows that the level of Dublin office take-up in the first half of the year was 36% lower than the same time a year ago at 1.1 million square feet.
HWBC said in its H1 2020 Office Review that a record level of demand in the first quarter was offset by the market coming to a near standstill in the second quarter.
Potential occupiers delayed decisions due to the uncertainties posed by Covid-19, HWBC said.
But the independent property firm said that while there is a high level of uncertainty in the Irish commercial property market, a crash – as experienced in 2009/10 – is unlikely.
It said this is due to the lack of oversupply and the well-capitalised long-term investors who now underpin the market.
HWBC expects take up this year to fall below 2 million square feet for the first time since 2012.
It said this reduced demand was making developers increasingly nervous about delivering new supply unless it is underpinned by a pre-let commitment from a blue-chip tenant.
Of the 5.5 millio square feet of space under construction for delivery in the city centre over the next three years, more than half is already pre-let to tenants, it added.
Earlier this week, Google said it was abandoning plans to rent office space in Dublin's Docklands for 2,000 employees. Last October, the company had entered into talks to rent the 'Sorting Office' near Dublin's south quays.
Despite the Google decision, HWBC said it thought commentary on the potential negative impact of the working from home trend on the demand for office space has been overdone.
It said that by far the largest driver of demand in the Dublin market – accounting for all five of the top lettings in H1 2020 – has been the technology sector, which even before the pandemic already allowed a large amount of flexibility to employees over where they worked.
According to HWBC, large tech companies have typically operated at a 50-70% occupancy rate.
It said they continue to expand in Dublin where they account for the bulk of the 500,000 squre feet of space currently in advanced negotiation for completion before year end.
It said that working from home may have a bigger impact on the professional and financial services sectors which typically have operated on a 100% occupancy model, with all staff allocated a dedicated desk.
"These sectors will likely see significant changes, as a flexibility trend that might have taken place over 10 years is now accelerated over 12 months," HWBC said.
However, office use in the suburbs may be positively impacted, as HWBC is aware of several large companies currently exploring a "hub and spoke" model where instead of having a large corporate headquarters in the city centre they opt for a mixture of central and suburban locations with staff varying where they work depending on their needs and exposure to external clients.
Paul Scannell, HWBC's Head of Offices, said that the doomsayers predicting the end of the office as we know it are overstating their case.
"Certainly Covid-19 has rapidly accelerated the trend towards flexibility but this was already in place in the technology companies who are the main drivers of demand in the Dublin market," Mr Scannell said.
"Whilst caution is warranted from investors and occupiers until we have more certainty, there is still going to be sustained demand for high quality office space," he said.
"We do expect some slowdown in delivery of supply, but this will likely be offset by an increase in the amount of 'grey market' space in the market, as some companies look to offload surplus space as they implement working from home policies," he added.