Ronald Quinlan
While the delivery of new stock to the private rented sector (PRS) market continues to face opposition both in the courts and from certain elements within the political establishment, investor appetite remains robust with demand for opportunities in the sector now spreading from Dublin and its suburbs to the commuter belt counties of Kildare, Meath and Wicklow.
That’s according to the latest Hooke & MacDonald residential investment report, which charts the €7 billion spent by Irish and international investors and funders in the PRS or multifamily market since its emergence as a core investment asset class in Ireland in 2016.
Looking at the numbers for the past five years, the report’s authors find that 17,696 multifamily/PRS units have traded in Dublin, with 64 per cent of these (11,335) being accounted for by new-builds and 36 per cent (6,361) accounted for by existing stock.
The figures for 2019 meanwhile show that 3,039 existing units were sold compared to 2,909 new-builds. In 2020 it swung in favour of new-build, with 2,049 (76 per cent) of these sold compared to 647 (24 per cent) units of existing stock.
This trend continued strongly into 2021, with 4,075 (87 per cent) newly built residential units transacted compared to just 595 (13 per cent) existing units. Taken together, the 4,670 units sold across 36 main transactions last year accounted for over €2 billion or 43 per cent of the overall investment spend, followed by offices at 22 per cent, industrial at 20 per cent and retail at 6 per cent.
The largest sale was the Ardstone transaction involving multiple developments in the Greater Dublin Area worth a reported €450 million for approximately 900 new-build properties.
The largest transaction in a single location in 2021 was the first major Irish residential forward-funded sale of 435 apartments at 8th Lock, Royal Canal Park, Dublin 15, for €200 million which is being developed by Ballymore Group and forward funded by Union Investment. Ballymore were advised by Hooke & MacDonald on this transaction while Union were advised by CBRE.
Publicly listed homebuilder Cairn Homes secured €240.5 million across two significant transactions, selling 342 apartments at Griffith Wood on Griffith Avenue, Dublin 9 to Greystar for €176.5 million and 107 apartments at Rostrevor Place in Rathgar, Dublin 6 to Hines European Core Fund for over €63.55 million.
Park Developments also completed another large forward sale in the year, securing €127 million from BlackRock and SW3 Capital for 297 apartments at East Village, Clay Farm, Dublin 18.
Richmond Homes, for its part, recently completed the forward sale for €70.7 million of 142 apartments at Roselawn in Foxrock, Dublin 18 to Aberdeen Standard. The price paid equates to €498,000 per unit and a gross yield of 5 per cent. The transaction was brokered by Hooke & MacDonald.
While Dublin has proved to be the main focus for PRS transactions over recent years, the surrounding counties of Kildare, Meath and Wicklow are seeing more activity the report’s authors say. Opportunities for build-to-rent developments in the wider Dublin area and the commuter belt are going to become more prevalent the report states, noting that in most cases this is the only way apartment developments are viable as build-to-sell pricing does not support funding or construction. As such, forward sales and purchases are expected to remain the most prevalent form of investment for new projects.
Looking beyond the capital and its commuter belt, Hooke & MacDonald says that Ireland’s regional cities are in “desperate need of new rental accommodation, especially apartments”, owing to the “negligible levels of new construction” that have taken place here in the last 13 years.
On this, the report’s authors say: “Rental stock availability levels are at historic lows and despite strong demographic and economic indicators, supply has been slow to increase mostly because of viability issues for apartments.”
But while funding for development remains a challenge, they add that the conditions are “coming right” for increased activity in the cities of Cork, Galway and Limerick on suitable sites in well serviced areas, and note that both domestic and international capital are looking at these locations.
Continued investment
Commenting on the role they believe the Government and wider political establishment should play in encouraging continued investment in the private rented sector, Hooke & MacDonald warns that “sudden or planned policy changes that damage one avenue for new supply ie the rental sector, are wholly shortsighted and counterproductive to Ireland meeting the accommodation needs of its citizens.”
“Currently there is an appetite to fund new development projects in Ireland, but this funding will move elsewhere if confidence in the sector is damaged, and the operating environment is unfeasible. We cannot rely on the Irish taxpayer to solely fund housing construction into the future and the country needs private sources of funding to compliment State funding,” the report states.
In terms of other challenges, Hooke & MacDonald describe the planning system as being “not fit for purpose” while noting that the “out-of-control objector free-for-all, and now commonplace judicial reviews, in relation to new residential developments is grossly unfair to those in need of housing.”
On this, the report’s authors say: “Bizarrely it’s not just well-housed members of the public that are objecting to new schemes but it’s also disingenuous politicians who are doing so, putting populism before principle. It’s hypocritical for politicians to criticise the government and developers for shortage of supply and high rental costs and house prices and then to go and contribute to those costs and shortages by objecting to developments or by advocating changes to draft plans that will in turn reduce supply and increase costs.”
Looking at the outlook for new-home delivery, the report says that the figure of 20,000 units delivered in 2021 could increase to over 26,000 this year, and to over 31,000 in 2023. In a cautionary note however, Hooke & MacDonald say that this is “very much dependent on the Government dealing with funding and viability issues for apartment delivery and taking urgent legislative action to deal with planning objectors and judicial reviews which are holding up and putting at risk thousands of new homes for the sale and rental markets.”
Article originally published in The Irish Times, Mar 9th, 2022.
