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 increase by 292,400 – or 21.7% – between this demand particularly strong from the Furthermore, there is limited public data
2016 and 2040 according to the Economic young, internationally mobile professionals in relation to management/operational
1. Dublin is witnessing a large increasingly positive internationally, with Dublin well-positioned
increase in investment in the and Social Research Institute (ESRI). working in the tech and finance sectors. costs on which new entrants to the
Private Rented Sector to capitalise on this trend. market can base investment decisions.
Furthermore, tighter mortgage That is not to say that the sector is without
underwriting standards has seen bank its challenges. Despite rents reaching However, with increased interest and
2. The next wave of investment The internationalisation of real estate demand has seen PRS become the second confidence in this space, we see PRS
lending fall to a fifth of the peak in 2006, record levels, the costs of construction
activity will concentrate on coupled with its segmentation into largest asset class in Dublin, with €926.7 continuing to grow in importance and
resulting in a growing cohort of lifetime remain high relative to other European
Build-to-Rent opportunities alternative investment specialisations – million deployed last year. However, the real
renters. Finally, there has been a cultural markets, although the Government has looks set to play a crucial role in relieving
student housing, retirement living and potential of PRS lies in the Built-to-Rent
shift in attitudes towards renting in recently implemented new design the lack of residential supply that has
PRS – means there is a supply of model. This is where investors fund the
3. There has been a move away from recognition of the flexibility it offers, with standards to address these challenges. emerged over the last number of years.
specialist global capital to deploy to the developments and hold for the long-term,
home ownership to PRS, with 60%
right markets. The interest in PRS has with an estimated weight of capital
of under 35’s now renting in Dublin
primarily been driven by pension funds, of between three to five billion euros
who are looking to take advantage of the chasing these opportunities in Dublin.
4. Ireland compares very favourably
with other European nations
fact that real wages and residential rents
are highly correlated – a relationship The transition from a buy-to-rent to a
BUILD-TO-RENT DEAL STRUCTURING
regarding PRS market fundamentals they use to offset future liabilities. More Build-to-Rent market will be driven by the
generally, a wide spectrum of investors drying-up of standing investment
Scheme
5. New design standards introduced are attracted to having an element of PRS opportunities coupled with the positive
Investor Developer requirements
by the Government will help in their portfolio as it exhibits unique market fundamentals that BTR investors
increase the viability of the risk-return characteristics thus offering seek. For starters, Dublin is undergoing a
Build-To-Rent model in Ireland portfolio diversification benefits. This population boom, with the population set to • PRS investors implement forward Forward funding • Investment value of between
funding and forward commitment €450 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
€350,000,000 purchasing existing apartment • Stamp Duty savings are possible good transport links
The PRS investment market has got off
to a strong start in 2019 with Greystar €300,000,000 stock allows greater scope for • Buyers are institutional investors
€250,000,000
maximising operational efficiencies €450 to
going sale agreed on 268 apartments at €800 psf
Dublin Landings for €175.5 million.
€200,000,000
as well as future proofing assets Forward commitment
€150,000,000
Activity in 2018 was dominated by €100,000,000 • Net prime entry yields range •
No up-front funding, fixed price agreed
€50,000,000
schemes that were already under between 4.00% and 5.00%, with to be paid on practical completion
0
construction such as the purchase of 6 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 expected returns over a 15 year • D
e-risked disposal at
2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018
Hanover Quay by Carysfort Capital from horizon given below: practical completion
Source: Knight Frank Research GEARED IRR
Cairn Homes and Irish Life’s acquisition
of Fernbank in Churchtown from Park
Selection of recent transactions (arranged by price psf)
7-9
• Stamp Duty
% on full cost
Developments. Similarly, Patrizia • L
ess risky, wider opportunity set of
UNGEARED IRR
UNGEARED IRR GEARED IRR
bought Honeypark from Cosgrave’s
in Q3 2017 during the construction
Date Property Type Buyer Units Average Average
(1-bed/ 2-bed/ price price/unit
Est.
price
Est. net
initial 6-7% 8-10% 5-6%
capital available
phase. Interestingly, each of these
3-bed) psf €m yield 150+ units
Q2 6 Hanover Quay, New Carysfort 120
developments were originally intended €807 €841,667 €101 4.00%
2018 Dublin 2 Build Capital (24/74/22)
for sale on a break-up basis to individual
Q1 Dublin Landings, New 268
owner-occupiers / investors before 2019 Dublin 1 Build
Greystar €740 €654,851 € 175.5 N/A
(82,146,40)
being converted to a PRS model. Practical Completion:
Q2 Fernbank, Dundrum, New 261* Land Exit
Irish Life €596* €523,946* €138.5 5.00% payment – Profit Payment
The sale of The Grange in Stillorgan 2018 Dublin 14 Build (56/188/17) – Developer Exit / Refinance Sale
represented one of the last major
Q3 The Grange, Existing Kennedy 274
disposals by NAMA of its standing €539 €459,854 €126 4.37%
2018 Stillorgan, Co Dublin Stock Wilson (74/175/25)
residential portfolio. The DEVELOPMENT PHASE STABILISATION PERIOD HOLD PERIOD
Q3 Honeypark, Dún New 319
next stage in the market will see 2017 Laoghaire, Co Dublin Build
Patrizia
(61/197/61)
€449 €413,793 €132 5.44% (18 - 24 Months) (+ 12 Months) (15+ years)
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 apartment rents
FIGURE 8 Tenure
Employment Dublin 000’s Apartment prices in Dublin have almost doubled since the bottom of the market Dublin rents in Q3 hit their highest level since records
According to the ESRI, the Irish economy is Ireland is experiencing a population boom, In Ireland, home ownership has traditionally
in 2012. The latest data also shows that prices grew by 5.7% in the year to began in 2007 and have now increased by 71% since Social
expected to have grown by 8.2% in 2018. providing a natural long-term source of October 2018. Renting been the aspiration for most people.
800
Growth of this magnitude would make it the demand for housing. Over the period
their low point in Q1 2011. Rents have been more stable
15% 12%
Increasingly, however, there is an ongoing shift
than prices having fallen by 28% in the aftermath of the Private
fastest growing economy in Europe for a fifth 1991-2016, the population grew by 35% Rented 12% towards renting with 25% doing so in Dublin
FIGURE 4 financial crisis compared to 65% for prices.
750
consecutive year. Dublin is the main engine compared to a growth rate of 7% for the EU Sector 25% according to the 2016 Census, over double the
700 of economic growth and has seen office as a whole. A high fertility rate in conjunction 140 12% recorded in 1991.
with low mortality rates has resulted in FIGURE 6
take-up expand for six consecutive years to 120 Private renting is the most frequent tenure of
Ireland’s natural population growth being
PROJECTED
650
set a new record in 2018 with 3.9 million sq ft 160 households under 35 years of age – 60% of
the highest in Europe at 6.6% in 2017, far 100
72% 63%
150
transacting. The tech sector is the main this cohort privately rent, while only 14% of
Index, 2005 = 100
600 ahead of the second highest of Cyprus 140
driver of the market, accounting for 52% of 80 Owner over 35’s privately rent. However, it should be
which had an increase of 3.8%. 130 Occupied
550 activity in 2018. In fact, Google, Amazon, 120 noted that in absolute numbers these are of
60
The high growth rate is set to continue with 110
similar sizes – there are almost 60,000 who
Facebook, LinkedIn and Microsoft now 100
500 Eurostat projecting that the population of 40 privately rent aged under 35 and there are
occupy over 2.2 million sq ft in Dublin and 90
Ireland will increase by 28.2% to 2080,
Index, Q3 2007=100
continue to expand at a rapid pace. This 20 80 almost 55,000 households who privately rent
450 compared to just 0.6% for the EU-28.
growth has led to employment surpassing
70
1991 2016 aged over 35 years old.
2012
2013
2014
2015
2016
2017
Q3 2018
2040
Source: CSO
0 60
Due to trends in urbanisation, Dublin is set 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Oct 2018
its pre-crisis peak with 696,200 people 50
to benefit most from this population growth. Source: CSO
Source: CSO, ESRI employed as of Q3 2018 according to the 40
According to the UN, 80% of people in 30
Central Statistics Office (CSO).
Ireland will live in urban areas by 2050, up Dublin properties to rent 20
Mortgage drawdowns FIGURE 9
In total, Dublin represents 31% of the from 62.7% in 2016. According to the CSO, 10
Just 1,379 properties were listed as available for rent on Daft.ie at the end of Q3 A lack of mortgage financing is
national workforce. over 40% of population growth in the
0 60,000
2018, less than a fifth of the peak of 8,264 recorded in Q2 2009. channeling households into PRS across
Q3 2007
Q3 2018
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
coming years will be concentrated in Dublin. all household ages in Dublin. For example, 50,000
Number of loans, Ireland
Looking ahead, The ESRI is forecasting that
Furthermore, the counties surrounding FIGURE 5 while the number of PRS households in
100,000 more jobs will be created in Dublin Source: RTB 40,000
Dublin in the Mid-East region (Meath, the over 35 age group grew at a rate of
by 2040, growing employment to 795,900 30,000
Kildare and Wicklow) have 9,000
4% per year, the number of outright
over the period. In the shorter-term, Brexit
the next highest potential accounting for Dublin new residential delivery 20,000
8,000 owners grew at half this rate at only 2%.
adds the potential for job relocations from approximately 25% of projected growth. Just 6,632 new residential units have been delivered in The number of households who own with 10,000
7,000
London with Barclays and JP Morgan Clearly then, Dublin will be the focal point of Dublin in the 12 months to Q3 2018, representing just over a mortgage grew at an even slower rate 0
among the companies believed to be future population growth which will 6,000 half of the estimated demand. Furthermore, we estimate an 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q3 2018
of 0.4% per annum, illustrating the lack
ramping-up their operations in Dublin. underpin long-term demand for housing. 5,000 immediate need for approximately 33,000 units to account
of mortgage financing in the market. Source: BPFI
for pent-up demand.
4,000
FIGURE 3 3,000 FIGURE 7
Components of Dublin’s population change by Census year (in thousands)
2,000 FIGURE 10 Share of mortgage market
7,000
70 1,000 Non-professional individual buy-to-let
Natural Increase Net Migration 70%
60 6,000 First-time buyer Buy-to-let
0 investors have traditionally been the providers
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q3 2018 60%
50 of rental accommodation in Ireland. In fact, at
5,000
Source: Daft.ie
6,632
40
50%
one stage during 2008, the BTL share of the
30
4,000 mortgage market exceeded the FTB share,
20 40% which was an indication of the unsustainable
10 3,000
30%
credit boom that fuelled the market at the time.
0
2,000 However, these individual investors have been
-10 20%
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 in 0 0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Q3 2018 professional PRS investors to fill.
the 12 months to Q3 2018
2011 2012 2013 2014 2015 2016 2017 Q3 2018
Source: CSO 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 a 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
4.8% 13.2% 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
23.8% 19.9% 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
2018 which included measures aimed at introduce a 2-bed standard for three evan.lonergan@ie.knightfrank.com
boosting construction and investment in people at a reduced size of 63 sq m.
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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and projections presented in this report, no responsibility or
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RESEARCH
from any use of, reliance on or reference to the contents
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not necessarily represent the view of HT Meagher O’Reilly
DUBLIN
OFFICE MARKET OVERVIEW Q3 2018
trading as Knight Frank in relation to particular properties
WITH AREA FOCUS: DUBLIN 8
or projects. Reproduction of this report in whole or in part
2018 is not allowed without prior written approval of HT Meagher
NEW HOMES
CONSTRUCTION O’Reilly trading as Knight Frank to the form and content
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