THE DUBLIN PRS REPORT - RESEARCH - Knight Frank
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RESEARCH THE DUBLIN PRS REPORT TRENDS ANALYSIS OUTLOOK
THE DUBLIN PRS REPORT RESEARCH
SUMMARY INTRODUCTION
Investor sentiment towards the Private Rented Sector (PRS) is population boom, with the population set to recognition of the flexibility it offers, with standards to address these challenges.
increase by 292,400 – or 21.7% – between this demand particularly strong from the Furthermore, there is limited public data
1. Dublin is witnessing a large increasingly positive internationally, with Dublin well-positioned in relation to management/operational
increase in investment in the 2016 and 2040 according to the Economic young, internationally mobile professionals
Private Rented Sector to capitalise on this trend. and Social Research Institute (ESRI). working in the tech and finance sectors. costs on which new entrants to the
market can base investment decisions.
Furthermore, tighter mortgage That is not to say that the sector is without However, with increased interest and
2. The next wave of investment The internationalisation of real estate demand has seen PRS become the second
underwriting standards has seen bank its challenges. Despite rents reaching confidence in this space, we see PRS
activity will concentrate on coupled with its segmentation into largest asset class in Dublin during the first
lending fall to a fifth of what it was ten record levels, the costs of construction continuing to grow in importance and
Build-to-Rent opportunities alternative investment specialisations – half of 2018, with €343.1 million deployed in
years ago, resulting in a growing cohort of remain high relative to other European looks set to play a crucial role in relieving
student housing, retirement living and Q2 alone. However, the real potential of
lifetime renters. Finally, there has been a markets, although the Government has the lack of residential supply that has
PRS – means there is a supply of PRS lies in the Built-to-Rent model. This is
3. There has been a move away from cultural shift in attitudes towards renting in recently implemented new design emerged over the last number of years.
specialist global capital to deploy to the where investors fund the developments
home ownership to PRS, with 60%
right markets. The interest in PRS has and hold for the long-term, with an
of under 35’s now renting in Dublin
primarily been driven by pension funds, estimated weight of capital of between
who are looking to take advantage of the three to five billion euro chasing these
4. Ireland compares very favourably
with other European nations
fact that real wages and residential rents
are highly correlated – a relationship
opportunities in Dublin. BUILD-TO-RENT DEAL STRUCTURING
regarding PRS market fundamentals they use to offset future liabilities. More The transition from a buy-to-rent to a
generally, a wide spectrum of investors Build-to-Rent market will be driven by the
Scheme
5. New design standards introduced are attracted to having an element of PRS drying-up of standing investment
Investor Developer requirements
by the Government will help in their portfolio as it exhibits unique opportunities coupled with the positive
increase the viability of the risk-return characteristics thus offering market fundamentals that BTR investors
Build-To-Rent model in Ireland portfolio diversification benefits. This seek. For starters, Dublin is undergoing a • PRS investors implement forward Forward funding • Investment value of between
funding and forward commitment €450 psf to €800 psf
structures with developers and • 100% funding solution with payments
staggered as milestones of project • Need for scale, ideally with
illustrate a willingness to pay a
150 plus units and €50 million
INVESTMENT FIGURE 1 premium when transacting with
well-funded developers
reached and covenants satisfied
• Improves Return on Capital plus ticket deal size
Dublin PRS investment volumes
MARKET ACTIVITY • Funding new BTR stock rather than
Employed (ROCE) • Prime locations or those near
€400,000,000
purchasing existing apartment • Stamp Duty savings are possible good transport links
€379.7million worth of PRS deals €350,000,000
transacted in the first half of the year €300,000,000 stock allows greater scope for • Buyers are institutional investors
maximising operational efficiencies €450 to
accounting for 23.8% of overall €250,000,000 €800 psf
investment spend. €200,000,000 as well as future proofing assets Forward commitment
€150,000,000
The activity in the first two quarters was • Net prime entry yields range •
No up-front funding, fixed price agreed
€100,000,000
dominated by schemes that are already between 4.00% and 5.00%, with to be paid on practical completion
€50,000,000
under construction such as the purchase expected returns over a 15 year • D
e-risked disposal at
0
of 6 Hanover Quay by Carysfort Capital Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 horizon given below: practical completion
2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 GEARED IRR
from Cairn Homes and Irish Life’s
acquisition of Fernbank in Churchtown
Source: Knight Frank Research
7-9
• Stamp Duty
% on full cost
from Park Developments. Similarly, • L
ess risky, wider opportunity set of
UNGEARED IRR
Selection of recent transactions (arranged by price psf) UNGEARED IRR GEARED IRR
Patrizia bought Honeypark from
Cosgrave’s in Q3 of last year during the
6-7% 8-10% 5-6%
capital available
Date Property Type Buyer Units Average Average Est. Est. net
construction phase. Interestingly, each (1-bed/ 2-bed/ price price/unit price initial 150+ units
3-bed) psf €m yield
of these developments were originally
intended for sale on a break-up basis to Q2 6 Hanover Quay, New Carysfort 120
€807 €841,667 €101 4.00%
2018 Dublin 2 Build Capital (24/74/22)
individual owner-occupiers / investors
before being converted to a PRS model. Q2 Fernbank, Dundrum, New 261* Practical Completion:
Irish Life €559* €491,379* €130 5.32% Land Exit
2018 Dublin 14 Build (56/188/17) payment – Profit Payment
The recent sale of The Grange in – Developer Exit / Refinance Sale
Stillorgan represents one of the last Q3 The Grange, Existing Kennedy 274
€539 €459,854 €126 4.37%
major disposals by NAMA of its 2018 Stillorgan, Co Dublin Stock Wilson (74/175/25)
standing residential portfolio. The DEVELOPMENT PHASE STABILISATION PERIOD HOLD PERIOD
Q3 Honeypark, Dún New 319
next stage in the market will see Patrizia €449 €413,793 €132 5.44% (18 - 24 Months) (+ 12 Months) (15+ years)
2017 Laoghaire, Co Dublin Build (61/197/61)
these investors forward commit and
forward fund developments directly Source: Knight Frank Research
*261 apartments, excluding one listed building on site that must be retained as a single-use dwelling. Estimated valuation CONSTRUCTION PAYMENTS
on a BTR basis. adjusted for this.
2 3THE DUBLIN PRS REPORT RESEARCH
FUNDAMENTAL DRIVERS KEY MARKET INDICATORS TENURE AND THE AFFORDABILITY GAP
FIGURE 2 Economy Population Dublin apartment prices Dublin residential rents
FIGURE 8 Tenure
Employment Dublin 000’s 2017 saw the highest rates of apartment price growth in Dublin since 2015 with Dublin rents in Q1 hit their highest level since records
The Irish economy is projected to be the Ireland is experiencing a population boom, In Ireland, home ownership has traditionally
prices growing by 10.8%. began in 2007 and have now increased by 55% since Social
fastest growing economy in Europe in 2018 providing a natural long-term source of been the aspiration for most people.
their low point in Q1 2011. Rents have been more stable Renting 12%
800 according to Eurostat, which would mark the demand for housing. Over the period 15% Increasingly, however, there is an ongoing shift
fifth consecutive year holding this distinction.
FIGURE 4 than prices having fallen by 27% in the aftermath of the Private
1991-2016, the population grew by 34% Rented 12% towards renting with 25% doing so in Dublin
750 financial crisis compared to 60% for prices.
Dublin is the main engine of economic compared to a growth rate of 7% for the EU 140 Sector 25% according to the 2016 Census, over double the
growth and has seen office take-up expand as a whole. A high fertility rate in conjunction 12% recorded in 1991.
700 120
for six consecutive years to set a new record with low mortality rates has resulted in FIGURE 6
in 2017. Take-up in 2018 has continued at a Ireland’s natural population growth being 100 Private renting is the most frequent tenure of
PROJECTED
650
130 households under 35 years of age – 60% of
Index, 2005 = 100
robust pace, with the first half of 2018 the highest in Europe at 6.6% in 2017, far
72% 63%
80 120
600 matching the record breaking 2017 at the ahead of the second highest of Cyprus this cohort privately rent, while only 14% of
60
110 Owner over 35’s privately rent. However, it should be
same period. The tech sector is the main which had an increase of 3.8%. Occupied
100
550 driver of the market, accounting for 39% of noted that in absolute numbers these are of
The high growth rate is set to continue with 40 90
activity during H1 2018. In fact, Google, similar sizes – there are almost 60,000 who
500 Eurostat projecting that the population of 20 80
privately rent aged under 35 and there are
Amazon, Facebook, LinkedIn and Microsoft
Ireland will increase by 28.2% to 2080,
Index, Q3 2007=100
70 almost 55,000 households who privately rent
now occupy over 2.5 million sq ft in Dublin compared to just 0.6% for the EU-28. 0
450 60
and continue to expand at a rapid pace. 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q2 2018
1991 2016 aged over 35 years old.
Source: CSO
2012
2013
2014
2015
2016
2017
Q2 2018
2040
50
This growth has led to employment Due to trends in urbanisation, Dublin is set Source: CSO
40
surpassing its pre-crisis peak with 695,100 to benefit most from this population growth.
Source: CSO, ESRI 30
people employed as of Q2 2018 according According to the UN, 80% of people in Dublin properties to rent
Ireland will live in urban areas by 2050, up 20 Mortgage drawdowns FIGURE 9
to the Central Statistics Office (CSO). Just 1,514 properties were listed as available for rent on Daft.ie at the end of Q2, 10
In total, Dublin represents 31% of the from 62.7% in 2016. According to the CSO, A lack of mortgage financing is
less than a fifth of the peak of 8,264 recorded in Q2 2009. 0 60,000
over 40% of population growth in the channeling households into PRS across
Q3 2007
Q1 2018
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
national workforce.
coming years will be concentrated in Dublin. all household ages in Dublin. For 50,000
Number of loans, Ireland
FIGURE 5
Looking ahead, The ESRI is forecasting that Furthermore, the counties surrounding example, the number of PRS households
Source: PRTB 40,000
100,000 more jobs will be created in Dublin Dublin in the Mid-East region (Meath, 9,000 in the over 35 age group grew at a rate of
by 2040, growing to 795,900 over the period. 30,000
Kildare and Wicklow) have 4% per year, the number of outright
In the shorter-term, Brexit adds the potential the next highest potential accounting for
8,000 Dublin new residential delivery 20,000
owners grew at half this rate at only 2%.
for job relocations from London with approximately 25% of projected growth. 7,000 Just 5,589 new residential units were delivered in Dublin last The number of households who own with 10,000
Barclays, JP Morgan and Wells Fargo Clearly then, Dublin will be the focal point of 6,000 year, approximately half of the estimated annual demand. a mortgage grew at an even slower rate 0
among the companies believed to be future population growth which will Furthermore, we estimate an immediate need for 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q2 2018
5,000 of 0.4% per annum, illustrating the lack of
ramping-up their operations in Dublin. underpin long-term demand for housing. approximately 30,000 units to account for pent-up demand.
4,000 mortgage financing in the market. Source: BPFI
3,000
FIGURE 3 FIGURE 7
Components of Dublin’s population change by Census year (in thousands) 2,000
FIGURE 10 Share of mortgage market
7,000
1,000
70 Non-professional individual buy-to-let
Natural Increase Net Migration 70%
0 6,000
60 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q2 2018 First-time buyer Buy-to-let investors have traditionally been the providers
60%
50
Source: Daft.ie of rental accommodation in Ireland. In fact, at
5,000
5,589
40
50% one stage during 2008, the BTL share of the
30
4,000 mortgage market exceeded the FTB share,
40%
20 which was an indication of the unsustainable
10 3,000
30% credit boom that fuelled the market at the time.
0
2,000 20%
However, these individual investors have been
-10
exiting the market due to the onerous tax
-20
1,000 10% burden of approximately 50% on rental
-30
income. Their exit is an opportunity for
-40
1986 1991 1996 2002 2006 2011 2016
new units were delivered 0
2011 2012 2013 2014 2015 2016 2017 Q2 2018
0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q2 2018 professional PRS investors to fill.
Source: CSO last year Source: CSO Source: BPFI
4 5 6IRELAND IRELAND IRELAND THE DUBLIN PRS REPORT RESEARCH
ELAND FIGURE 11
Population living in apartments
FIGURE 12
Population renting from private landlord
FIGURE 13
Renting population paying overburdened rental level
PRS MARKET Latvia
Estonia
Germany
Denmark
Sweden
Greece
Bulgaria
FUNDAMENTALS:
Lithuania Lithuania
Spain Netherlands Croatia
Slovakia Austria Spain
Bulgaria Luxembourg Hungary
Czech Republic Greece Romania
IRELAND IN A
Sweden Belgium Belgium
EUROPEAN CONTEXTEU-28 EU-28 EU-28
Poland EU-28 United Kingdom
U-28
Romania France Luxembourg
Finland United Kingdom Italy
Austria Italy Portugal
Hungary Czech Republic Denmark
Italy Spain Czech Republic
Denmark Cyprus Slovenia
EU-28 Ireland Estonia
Greece Finland EU-28
France Portugal Netherlands
Slovenia Slovakia Poland
Portugal Latvia Germany
Germany Slovenia Malta
Croatia Poland Ireland
Netherlands Hungary Cyprus
Luxembourg Estonia Sweden
Cyprus Malta France
Belgium Bulgaria Austria
Malta Croatia Finland
United Kingdom Romania Slovakia
Ireland Lithuania Latvia
0% 10% 20% 30% 40% 50% 60% 0% 5% 10% 15% 20% 25% 30% 35% 40% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Source: Eurostat, data relating to 2016 Source: Eurostat, data relating to 2016 Source: Eurostat, data relating to 2016
Note: Percentage of the population living in a flat in a building with ten or more dwellings Note: Percentage of the population renting at market prices Note: Percentage of the population living in households spending 40% or more of their equivalised disposable income on housing
IRELAND
FIGURE 14 FIGURE 15 FIGURE 16
Average household size Natural population growth Forecast population growth 2020–2080
Croatia Ireland Luxembourg
Cyprus
4.5% 14.7% 19.6% 2.7 6.6% 28.2%
Poland Sweden
Slovakia Luxembourg Ireland
Ireland France United Kingdom
Cyprus Sweden Belgium
Romania United Kingdom Denmark
Greece Malta France
Malta Denmark Cyprus
Bulgaria Netherlands Malta
Spain Belgium Netherlands
Luxembourg Slovakia Austria
Portugal Austria Spain
Slovenia Czech Republic EU- 28
Czech Republic Poland
LIVING IN RENTING FROM PAYING AVERAGE ANNUAL NATURAL POPULATION Latvia Slovenia
Finland
Slovenia
APARTMENTS A PRIVATE OVERBURDENED HOUSEHOLD POPULATION INCREASE EU-28
Belgium
EU-28
Finland
Germany
Czech Republic
LANDLORD RENTAL LEVEL SIZE CHANGE TO 2080 Italy Spain Hungary
Hungary Estonia Italy
United Kingdom Germany Estonia
Estonia Portugal Slovakia
France Italy Croatia
Lithuania Greece Poland
Netherlands Romania Romania
23.9% 19.7% 28.0% 2.3 -0.4% 0.6% Austria Hungary Portugal
Denmark Lithuania Greece
Germany Croatia Latvia
Finland Latvia Bulgaria
EU-28
Sweden Bulgaria Lithuania
1.50 1.75 2.00 2.25 2.50 2.75 3.00 -7.0% -5.0% -3.0% -1.0% 1.0% 3.0% 5.0% 7.0% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70%
Source: Eurostat, data relating to 2017
Note: The crude rate of natural change is the ratio of the natural change during the year (live births minus deaths) to the average
Source: Eurostat, data relating to 2016 population in that year. Source: Eurostat, 2018
77 8 9RESIDENTIAL CAPITAL MARKETS
NEW DESIGN STANDARDS James Meagher, Director
james.meagher@ie.knightfrank.com
Adrian Trueick, Director
The Irish Government introduced a new introduced. While previously 2-bedroom adrian.trueick@ie.knightfrank.com
set of apartment design guidelines – apartments could only be designed for Peter Flanagan, Director
‘Design Standards for New Apartments four people habitation with a minimum peter.flanagan@ie.knightfrank.com
– Guidelines for Planning Authorities’ – in size of 73 sq m, the new standards
Evan Lonergan, Director
March 2018 which included measures introduce a 2-bed standard for three evan.lonergan@ie.knightfrank.com
aimed at boosting construction and people at a reduced size of 63 sq m.
investment in PRS as summarised below. Ross Fogarty, Director
Also, the requirement that the majority of
ross.fogarty@ie.knightfrank.com
all apartments in a proposed scheme
Asset class designation exceed the minimum floor area standards Donal Courtney, Surveyor
donal.courtney@ie.knightfrank.com
BTR is now a specific asset class. In order by a minimum of 10% does not apply to
to be classed as BTR, certain covenants BTR schemes.
must be satisfied such as providing RESEARCH
Shared Accommodation is now
communal and recreational facilities.
permissible with minimum floor areas of John Ring, Head of Research
Perhaps most importantly are the
12 sq m for single rooms and 18 sq m for john.ring@ie.knightfrank.com
stipulations regarding the holding and
disposal of the asset in order to be double or twin rooms. Robert O’Connor, Research Analyst
designated as BTR: ‘the development robert.oconnor@ie.knightfrank.com
remains owned and operated by an Dual aspect ratios
institutional entity and that this status will The dual aspect requirement for centrally
continue to apply for a minimum period of located schemes has been reduced to
not less than 15 years and that similarly no 33% from 50%, with the 50%
individual residential units are sold or requirement remaining for intermediate
rented separately for that period’. and peripheral locations.
However, this does not prohibit the
selling of the entire scheme to another
Floor-to-ceiling heights
institutional investor during this time. Minimum floor to ceiling heights remain
at 2.4m (2.7m at ground) but a floor to
Dwelling mix ceiling height of 2.7m throughout is
There is no dwelling mix requirement for a encouraged in locations where greater
BTR scheme under the new guidelines. height is appropriate. There is no
This means that an entire scheme could maximum number of permissible units
theoretically be comprised of studios or per floor per core for BTR schemes.
one-bed units, although operators would
generally prefer some mix of unit sizes. Car parking
BTR schemes have a default of ‘minimal
Unit sizes or significantly reduced car parking
Studios are included at a minimum size provision on the basis that BTR
of 37 sq m. In addition, a new category development is centrally located and/or
of 2-bedroom apartment has been close to public transport services.’
© HT Meagher O’Reilly trading as Knight Frank
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used in the preparation of the information, analysis, views
and projections presented in this report, no responsibility or
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trading as Knight Frank for any loss or damage resultant
RESEARCH
from any use of, reliance on or reference to the contents
of this document. As a general report, this material does
INVESTMENT INSIGHT
not necessarily represent the view of HT Meagher O’Reilly
DUBLIN
OFFICE MARKET OVERVIEW trading as Knight Frank in relation to particular properties
Q2 2018
or projects. Reproduction of this report in whole or in part
2018 is not allowed without prior written approval of HT Meagher
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CONSTRUCTION O’Reilly trading as Knight Frank to the form and content
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DUBLIN
ACTIVE
RESIDENTIAL MARKET ANALYSIS
FOR INTERNATIONAL INVESTORS
2018
No. 001266. HT Meagher O’Reilly New Homes Limited trading
CAPITAL
as Knight Frank, Registered in Ireland No. 428289, PSR
WITH SPECIAL FOCUS: PLACING THE DUBLIN
OFFICE MARKET IN A EUROPEAN CONTEXT THE REPORT 2018
OCCUPIER TRENDS INVESTMENT TRENDS MARKET OUTLOOK
TRENDS ANALYSIS OUTLOOK
Reg. No. 001880. Registered Office – 20–21 Upper Pembroke
Dublin Office Market Active Capital – New Homes Construction Dublin Residential Street, Dublin 2.
Overview – Q2 2018 The Report 2018 survey – 2018 Market Analysis – 2018
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