2019 was another buoyant year in the Dublin development land market with our projections indicating that about €1.3 billion of land will change hands in the capital over this period.
A strong economy, positive demographic trends and a continued shortage of residential and office accommodation are the drivers supporting the market. We continue to witness considerable amounts of foreign money looking to invest in what they see as a fundamentally secure property market. Obviously Brexit will have had an impact, but 2019 as a whole will have seen limited fallout for the land market. The impact on the Dublin property market will, in the main, have been positive.
The land market for offices remains extremely strong, with all indications that the take-up for the year in this sector will exceed three million sq ft which again represents a very strong occupier demand. Prime rents, for reasonably-sized deals, are hovering at just over €60 per sq ft, and coupled with tightening yields are underpinning a strong development value for office sites which are securing over €40 million per acre for prime city centre opportunities.
Encouragingly we are now witnessing an increase in suburban take-up which in turn is increasing developer demand in such locations. This is supported by Core Capital's and Oakmount's recent acquisition of a five-acre site at Eden Plaza in Sandyford, together with Johnny Ronan's acquisition of a 13-acre site in Cherrywood, both of which Knight Frank advised on.
Residential under-supply
The residential market remains massively under-supplied as development has not recovered at anything like the pace of the office market. There are a number of reasons for this but at the core remains a lack of speculative development finance and we are now witnessing a significant delay in service connections for new schemes.
There is no doubt that 2019 has seen the arrival of the private rented sector (PRS) as a stand-alone market division. The changes in the planning regulations, continued positive demographics coupled with the lack of any meaningful build-to-sell supply has encouraged investors to deploy significant amounts of investment into this sector, with indications that in excess of €1.5 billion will be invested in the sector in 2019.
The largest development land transaction of the year was handled by Knight Frank on behalf of Dublin Institute of Technology. This involved the sale of its Kevin Street campus for over €140 million to Shane Whelan's WestRidge Real Estate in August. The 3.5 acre site did not have planning permission but it is assumed that Whelan will apply for a mixed-use office and PRS-led scheme, which again supports the strength of these market sectors. Knight Frank commented that the level of interest, both national and international, in the site when offered to the market was astounding with over €1 billion in offers submitted on the day.
To see this wall of money chasing a speculative development opportunity in the midst of Brexit illustrated the international confidence that underpins our development market.
While the outlook for 2020 appears positive, Knight Frank does expect a degree of caution from purchasers for the first quarter of the year as Brexit plays out. Also, the UK and US elections next year, together with a likely Irish election, may cause some caution around investors as they adopt a wait-and-see approach to their decision making. But these are only likely to pause the market for a period of time as all indications are that the market will kick on again as structural undersupply underpins demand.
Evan Lonergan is a director of Knight Frank and specialises in the sale of development land
