Irish Development Land Market - Savills
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Savills Research – Q2 2021
MARKET
IN
Irish Development
MINUTES
Savills Research Land Market
Macro view • Land sales market • Outlook
Irish Development Land Market - Q2 2021
Macro view
Focus to pivot back to sectoral market dynamics as pandemic-related
uncertainty begins to wane.
Over the last number of years, strong population growth a global shortage in many building materials which is
combined with a chronic shortage of supply has led to leading to strong inflationary pressure on construction
steady growth in house prices and rents. While this costs. The strongest price growth has been for rough
47% has generated steady interest in land with potential
for residential development, viability constraints and
timber, with prices increasing by almost 30% since the
start of 2021. A survey of members of the Irish Home
of land sales in Q2 were for
residential use a shortage of sites with planning permission have Builders Association found that the average price of a
restricted output. new 3-bed house could increase by €12,000 to €15,000
Further to this, the Covid-19 pandemic is causing by the end of 2021 to adjust for these increased costs.
Figure 1: Construction materials price inflation
35
30
Cost of a new 3-bed house
could increase by 25
€12-15k 20
15
%
10
5
-
-5
-10
2019M01
2019M02
2019M03
2019M04
2019M05
2019M06
2019M07
2019M08
2019M09
2019M10
2019M11
2019M12
2020M01
2020M02
2020M03
2020M04
2020M05
2020M06
2020M07
2020M08
2020M09
2020M10
2020M11
2020M12
2021M01
2021M02
2021M03
2021M04
2021M05
Cement Structural steel Rough timber
Appetite remains for newly
built
OFFICE STOCK Source: CSO
Source: CSO
Despite these rising costs, the new homes market shift to remote working looking increasingly unlikely
continues to perform strongly with anecdotal evidence as hybrid models emerge. Meanwhile, the industrial
from our agents pointing to an over-subscription for and logistics market is characterised by a shortage of
new schemes brought to the market. Indeed, data from modern stock and an occupational market that has
the CSO shows house prices grew by 3.1% in the first five remained relatively robust throughout the pandemic.
months of 2021. Notably, demand for residential units is Indeed, the pandemic has hastened the shift towards
such that these rising costs are being absorbed by buyers e-commerce which generates demand at a greater rate
as prices continue to rise. than traditional bricks and mortar retail. This will drive
On the commercial side, appetite remains for newly stronger demand for industrial and logistics space in the
SHD related planning built office stock, with predictions of a large-scale medium to long-term if this trend persists.
uncertainty has been
RESTRICTING
OUTPUT
savills.ie/research 2
Irish Development Land Market - Q2 2021
Land sales market
Irish land sales totalled €99 million in Q2, which brought total year- Crucially the first halves of both 2020 and 2021 should be considered
to-date turnover to €194 million. This represents an increase of 16% in the context of national lockdowns. In Q1 2021, most formal sale
compared to the same period in 2020 when turnover reached €167 processes were postponed while on-site visits were prohibited during
million. Notably however, it marked a decline of 59% compared to the level 5 restrictions. As a result, many sales processes were deferred
the first six months of 2019 when turnover reached €473 million. which impacted half-year land sales volumes.
Figure 2: Development land turnover
1.6
1.4
1.2
1.0
€bn
0.8
0.6
0.4
0.2
-
2013 2014 2015 2016 2017 2018 2019 2020 YTD 2021
Source: Savills Research
Source: Savills Research
There is currently a lack of development opportunities available, as With the current uncertainty surrounding the planning process,
evidenced by the subdued quantum of land being marketed for sale. it is unsurprising that land with residential zoning made-up the
Many prospective sellers were previously adopting a wait-and-see highest share of turnover in Q2. In total, we estimate that residential
approach to the pandemic, particularly in the first half of this year. With zoned land sales accounted for almost 50% of sales volumes, with
that being said, we are seeing more confidence returning to the market many of the mixed-use sites that traded in the quarter also having
as a whole and we expect to see an increase in the supply of development the potential to accommodate a significant residential component.
land in Q3 as pandemic related uncertainty is reduced, with a number A high proportion of land with industrial zoning also traded in Q2,
of large transactions - both with and without planning - expected to accounting for 36% of turnover. The industrial market is currently
come to market in September. Seasonality will also play a role, with Q3 suffering from a similar lack of supply with new development required
typically seeing elevated levels of activity in any given year. to ease the shortage.
We expect to see an increase in the supply of development land in Q3 as
pandemic-related uncertainty is reduced.
savills.ie/research 3Irish Development Land Market - Q2 2021
Top deals
Lands at Kinsaley, Co. Dublin currently for sale – FPP for 32 x 4-bed detached Houses
Figure 3: Q2 land sales by potential use
0.6%
0.6%
5% The largest deal of the quarter was the sale of the Airlinks landbank,
5% located just off the M2 motorway. The site, which has 55 acres zoned
11% for industrial use and an additional 10-acres with development
11%
Residential potential, traded for €26.0 million. The second-largest transaction
Residential
was the sale of an 11-acre site on Glenamuck Road, Dublin 18 which
Industrial
Industrial
traded for €10.5 million. The site has full planning permission granted
Mixed
MixedUseUse
47%
47% by An Bord Pléanala in 2020 for a Strategic Housing Development
Retail
Retail of 197 residential units. This follows on from a deal for a 33-acre site
Commercial
on Glenamuck Road in Q4 2020, which sold for in the region of €20
Commercial
Agricultural
million, while a third site of approximately 7.5 acres in the area has
36% Agricultural just gone sale agreed. Another notable sale in the quarter was M3
Gateway Lands site in County Meath, which reportedly traded at a
36%
price in excess of €10.0 million. This is an industrial site with the
potential for a logistics/distribution hub or data centre.
Source: Savills Research
Table 1: Q2 top 5 deals
Source: Savills Research
PROPERTY LOCATION POTENTIAL USE SIZE (ACRES) PRICE PRICE PER ACRE
Airlinks, Cherryhound Junction Source:
Co. Savills Research
Dublin Industrial 64.5 €26.0m €403,101
Glenamuck Road, Kilternan Dublin 18 Residential 11.1 €10.5m €944,245
Off Market Co. Meath Residential 32.3 €10.1m €312,597
Jamestown, Ratoath Co. Meath Residential 14.9 €10.0m €671,141
M3 Gateway Lands, Clonee Co. Meath Industrial 22.2 €10.0m* €450,857
*Traded in excess of this
Looking ahead, we expect to see several large deals transact accommodate an office development of approximately 142,000 sq ft,
in the latter half of the year which will boost turnover volumes subject to planning permission. The site was offered for sale with a
significantly. The market for commercially zoned land remains guide price of €35.0 million, with several bids received well in excess
strong with our agents reporting strong levels of interest in of the asking price. The sale has piqued the interest of a number of
the former City Arts site at 1-6 City Quay, Dublin 2. The site, new funding sources looking to enter the market, most notably from
which extends to approximately 0.55 acres, has the potential to the UK and the Middle East.
savills.ie/research 4Irish Development Land Market - Q2 2021
Planning uncertainty: a developing concern
Sites with planning permission have risen in priority in recent times, By analysing the number of planning permissions being granted
primarily because almost one in three planning permissions under each quarter, the impact of this development bottleneck becomes
the Strategic Housing Development (SHD) process now go to judicial evident. In Q1 2020 planning permissions granted reached their
review, of which more than 90% are successful. It is promising that highest point since the GFC with permission for 14,000 units granted.
the government has recognised the inadequacy of the SHD planning Although this was less than half the 29,000 units granted permission
application system, however, in the interim, many financiers are in Q2 2005, it showed a trend moving in the right direction. However,
unwilling to take on planning risk until we have more clarity on the the pandemic has severely hit permissions granted with just 3,100
matter. Land with full planning permission has always traded at a units granted permission in Q1 2021, in a sign that the crisis will have
premium, but in recent times we have seen this gap widen. a detrimental impact on new supply over the medium-term.
Figure 4: Quarterly planning permissions granted
35,000
30,000
25,000
20,000
Units
15,000
10,000
5,000
0
2002Q3
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
2013Q3
2014Q1
2014Q3
2015Q1
2015Q3
2016Q1
2016Q3
2017Q1
2017Q3
2018Q1
2018Q3
2019Q1
2019Q3
2020Q1
2020Q3
2021Q1
Source: CSO
An undersupply of planning permissions is not the only issue Higher planning restrictions inevitably lead to increases in prices
the planning system is creating, with issues also arising in the way by reducing supply. Evidence from the US suggests that there are
Source: CSO
density requirements are being applied nationwide. Currently, a two major barriers to entry into the housing market: regulatory
density requirement of between 35 - 50 units per hectare is being and geographic. The study found that when these two factors were
sought across the country, typically closer to the upper end of present, a 10% increase in demand led to a corresponding 6.5%
the scale in urban areas. These requirements are being sought increase in prices, with both factors having a roughly equal impact.
irrespective of what is contained within County Development Conversely, if the increase in demand was in a city with sufficient
and Local Area Plans. This density works well in Dublin, and in geography (i.e. land to build on) and no regulatory barriers to
a small number of urban centres outside Dublin, where most building then an increase of demand would see prices increase by
unit types are viable. However, in many areas outside of Dublin - 0.6% in response.1
which are of less interest to investors - the need for a significant In the context of the Irish system, it is clear that this is a
volume of apartments is in some cases an onerous requirement. contributing factor to the current supply-demand imbalance we are
This is significantly increasing risk and reducing viability of new seeing in the residential market. The abolition of the SHD system
development, given the limitations on what an apartment unit in its current form is certainly a positive development, but a more
might trade for in these locations compared to the cost of delivery. simplified and accelerated planning process must also be quickly
In a lot of cases, apartments cost significantly more to build than developed to replace it. In the long-run, an overhaul of the planning
what they could potentially sell for, thereby restricting supply in system could see more land with planning permission coming to the
certain locations. market, which will ultimately help ease the current housing crisis.
1
The Geographic Determinants of Housing Supply (Saiz, 2010)
savills.ie/research 5Irish Development Land Market - Q2 2021
Outlook
The last 18 months in the property market have been characterised this sector are rising build costs, reported difficulties in sourcing
by uncertainty created by the Covid-19 pandemic. The speculative suitably qualified labour as well as planning uncertainty. Given
nature of development land means it is the most sensitive of these factors, residential land that benefits from a full grant of
property sectors to uncertainty, with market participants adopting planning will continue to achieve the strongest prices.
a wait and see attitude which has impacted on land sale volumes. On the commercial market, while there will be some degree
This has resulted in a subdued level of transactions in the first of scarring to occupational markets caused by the pandemic, the
half of 2021, although values have remained strong for those sites underlying tenant base for most sectors remains robust. Crucially,
that have traded. Full-year deal volumes are likely to be relatively there has not been an overhang of space caused by rising vacancy
robust with a number of significant sites already sale agreed and a in the office or industrial markets of the kind that would dampen
substantial sales pipeline expected in Q3. With strong take-up of developer sentiment. Considering that offices have been functionally
the vaccination programme continuing, the degree of uncertainty empty for the last 18 months, the vacancy rate has remained
caused by the pandemic is wanning which is once again turning relatively stable and we expect to see the occupational market
attention back to underlying market dynamics. begin to recover in the latter half of the year. Furthermore, the ESG
For the residential market, predictions made at the start of the agenda has risen even further to the fore which is translating into
pandemic regarding decreases in prices of excess 10% have failed demand for new energy rated office stock from both occupiers and
to materialise, with prices in fact appreciating over the period. If investors alike as evidenced by the strong interest in the 1-6 City
anything, we have seen demand-supply imbalances exacerbate Quay sale. The industrial and logistics sector has minimal levels
during the pandemic as a lack of construction impacted new supply. of existing vacancy and we have seen the dual forces of Brexit and
Innovations introduced in the new homes market such as virtual the acceleration of online shopping reshape and boost demand for
viewings allowed this sector to continue to service demand, with development land in this sector over the last 18 months. Even retail
the market only limited by the supply of stock for sale. The PRS - which remains challenged - may have pockets of development
market has also performed well through this period, with rents opportunity in the coming months. Overall, Ireland’s economy is
and occupancy levels holding strong, while absorption rates for set to continue to recover this year and into 2022 which will drive
new schemes were impressive. The main concerns for developers in demand for development land to accommodate this growth.
Lands at Delgany, Co. Wicklow currently for sale – approx. 6.42 acres zoned residential
Savills team
Please contact us for further information
John Swarbrigg Ebba Mowat Andrew Sherry John Ring Andrew Blennerhassett
Director, Development, Divisional Director, Divisional Director, Director, Research Analyst,
Agency & Consultancy Development, Agency & Development, Agency & Research Research
+353 (01) 1 618 1333 Consultancy Consultancy +353 (01) 1 618 1431 +353 (01) 1 618 1705
john.swarbrigg@savills.ie +353 (01) 1 618 1413 +353 (01) 1 618 1452 john.ring@savills.ie andrew.blennerhassett@
ebba.mowat@savills.ie andrew.sherry@savills.ie savills.ie
savills.ie/research 6You can also read
