Investment in Dublin private rented sector remains robust in face of Covid-19

Investment in Dublin private rented sector remains robust in face of Covid-19
Conor Fitzpatrick

Investment in Dublin private rented sector remains robust in face of Covid-19

Three sales totalling €391m among deals signed since lifting of lockdown, report finds

A new report on the private rented sector (PRS) shows that investment remains buoyant notwithstanding the uncertainty created by the Covid-19 pandemic in the wider commercial property sector and economy.


While the imposition of the coronavirus lockdown last March resulted in the delay or postponement of a number of residential investment transactions, the latest analysis by agent Hooke & MacDonald shows that six significant PRS deals still took place in Dublin in the first half of this year. Some 440 such units with an overall value of €163 million changed hands in the period. New builds accounted for 225 of the units sold, while the remaining 215 units were drawn from existing stock.


The recent easing of Covid-19 restrictions has seen an uptick in investment activity, with a number of transactions which had been put on hold either signed already or expected to transact in this quarter.


The largest deal to have concluded in the post-lockdown period is the sale by the Cosgrave Property Group of 368 apartments at its Cualanor scheme in Dún Laoghaire to Deutsche Bank subsidiary DWS for about €200 million.


DWS was involved also in the second-largest residential transaction to have been completed since the lifting of restrictions, paying €145 million for a portfolio of 317 residential units the MKN Property Group is developing in the capital. This Prestige portfolio comprises a mix of existing and new-build apartments and houses distributed across four schemes in the north Dublin areas of Swords, Raheny, Clontarf and Killester.


Other notable deals which closed recently include the sale by developer Pat Crean’s Marlet Property Group of the 56 apartments at its Ropemaker Place scheme in Dublin 2 to German fund Real IS AG for about €46 million.


With the level of transactional activity once again accelerating, Hooke & MacDonald says it expects PRS to be Ireland’s largest investment sector in 2020. A record €2.36 billion was invested in PRS here last year – a massive 150 per cent increase on the €930 million spent on the sector in 2018.

Covid-19 costs

While the suspension of construction activity between March 27th and May 18th had an immediate impact on the delivery of new residential accommodation, Hooke & MacDonald says it also expects Covid-19 to compound existing difficulties relating to the cost and viability of schemes.


Commenting on this, the report says: “The immediate impact comes from the costs associated with specific Covid-19 safety measures. The recent construction lockdown has added to the problem.


“While planning permissions have increased significantly, most of these are incapable of being commenced in the foreseeable future due to a combination of reasons, most notably viability and in some cases the inability of stakeholders to bring projects forward. Viability is being impacted by a number of factors, including increasing construction costs, Government taxes and levies on new construction, costs of delays to planning and infrastructure, the cost of finance, the cost and supply of zoned land and other costs such as compliance and water charges.”


But while developers are facing a variety of challenges, the report notes that investor appetite for the forward sale and forward funding of PRS schemes remains robust.


On this, Hooke & MacDonald says: “The long-term and stable nature of the asset class, with low vacancy and voids, is ideal for investor entities with long-term investment requirements, including pension funds and sovereign wealth investors. The multi-family/PRS sector is now seen as a mainstream asset class and the increasing activity and level of transactions in it in Ireland and on a pan-European basis in recent years is witness to this.”


The attractiveness of the Irish PRS market for institutional investors is borne out by the strength and consistency of the investment yields. An examination of the transactions that have gone through in 2020 shows that they have, for the most part, come in above the guide prices for the original offerings. And when yields are compared to those generated in transactions in 2019, the yields are found to be broadly in line.


In the case of the Cosgrave Property Group’s sale of 368 apartments at Cualanor to DWS for €200 million, for example, the net yield was approximately 3.75 per cent. The Cosgraves’ sale of the 214 units in the adjoining Fairways block to DWS for €108 million in 2019 produced a similar net yield.


Commenting on the oft-repeated suggestion that big investors have been acquiring residential properties that would otherwise have been made available for sale to the traditional owner-occupier market, Hooke & MacDonald says that the majority of this new stock would not have been built in the absence of institutional forward purchase or funding. Some 5,500 new residential apartments and houses have been built in Dublin since 2016 using funding from these investors, the report notes.

Future growth

While Dublin and the greater Dublin area has accounted for most of the investment in Ireland’s fast-growing PRS market to date, the report says the conditions are now right for increased transactional activity in other cities.


On this, it says: “There is a significant shortage of high-quality residential accommodation in Galway for the sale and rental markets to meet the needs of its expanding population and dedicated workforce. There is good potential for the PRS sector also in Cork and Limerick.”

If you are thinking of investing in property as a source of alternative income, 

why not contact us today to discuss your requirements in more detail?

Phone: +353 86 325 0048 I

Source: The Irish Times  – Ronald Quinlan.

  • Covid-19

    Invest in more social housing to avoid Covid-related supply shock, says ESRI

    Invest in more social housing to avoid Covid-related supply shock, says ESRI The State should increase its investment in social and affordable housing now to offset a future supply crunch caused by Covid-19, according to the Economic and Social Research Institute (ESRI).   A new paper from ESRI researchers has concluded that the long-term effect of Covid-19 on the housing market is likely to be a reduction in supply of homes in coming years caused by a dip in investment now, as builders find it harder to secure development finance from banks whose profits are down.   In the short term, the ESRI predicts, as State pandemic income supports are unwound, demand will decrease in the housing market. But in the long term, a supply crunch could exacerbate the “imbalance” between supply and demand that already existed in the housing market, once the economic uncertainty of the pandemic ends and housebuyers come back on the market.   The researchers, Kieran McQuinn and Conor O’Toole, highlight that the savings rate – the proportion of income put away by the public – is likely to rise to close to 20 per cent this year from 10.5 per cent last year, as the public remains cautious in the midst of the economic uncertainty.   They suggest in their paper, Assessing the Impacts of Covid-19 on the Irish Property Market, that, once the pandemic ends, these elevated savings “could be directed towards the housing market” and potentially cause “a surge in demand”. Undersupply “As demand picks up, the level of supply will not be there to meet it, amplifying the existing undersupply,” the ESRI researchers conclude. They suggest the full effects of Covid-19 may not be become apparent in the housing market for another year or more.   Latest estimates from the lobby group for banks, the Banking and Payments Federation of Ireland, suggest that housing completions in 2020 will fall by 3,000 from last year’s total to 18,000. Previous ESRI estimates have suggested completions could fall as low as 15,000 or 16,000 this year.   The number of new houses needed to meet demand in the long term in the Irish market is believed to be up to 35,000.   The ESRI researchers say the imbalances in the housing market, both for purchases and in the rental sector, may also be exacerbated because of affordability problems among the cohort of workers currently employed in the sectors most affected by anti virus restrictions. Hospitality, tourism and retail, which have a higher proportion of lower-paid workers, are the segments of the economy that have been hit hardest by Government curbs to stop the spread of coronavirus. Imbalance “One of the most appropriate policy responses is for an increase in State provision of social and affordable housing. An increase in the supply of such housing at this point would help to reduce the extent to which the imbalance would be exacerbated by the present crisis,” the report concludes.   “At a more speculative level, the potential increase in the number of people who can and will work from home in the future may have significant implications for the housing market and the general economy over the longer term,” they say.   The researchers suggest this means that most of the existing pre-pandemic long-term predictions of future housing requirements may have to be recalculated. If you are thinking of investing in property as a source of alternative income, ​ why not contact us today to discuss your requirements in more detail?​ ​ Phone: +353 86 325 0048 I Source: The Irish Times  – Mark Paul  
    Author: Conor Fitzpatrick
    Read Time: 5 mins