Several large, stabilised developments will be brought to the market in 2025 and the reaction to these will be watched by the more than 27 investors with Irish portfolios and direct exposure to the private rental sector in Dublin
Ireland’s population has surged in recent years, with about 100,000 people being added to it annually. Combined with employment growth, it is in stark contrast to what is happening on the ground in terms of new rental accommodation supply, forward sales investment transactions and a government strategy for the private rental sector (PRS).
The construction of apartments for the private rental sector in Ireland has ground to a virtual halt, except for a small number of developments which are just nearing completion, including two large ones in Dublin’s north docklands. There were no new-build PRS investment transactions in the first three quarters of 2024 in the greater Dublin area, and none are expected in the final quarter, which was in follow-up to only two new-build transactions being reported in 2023.
Significantly, the only time in the past 18 months that there was a moderation in rents in Dublin was when the institutionally funded developments that were pre-sold two to three years ago came on to the letting market post-completion. Due to many factors, including the 2 per cent rent cap restriction, this supply has now fallen away.
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The overall investment spend across all asset classes in the greater Dublin area in quarters 1-3 of 2024 was €991 million, just a 2 per cent fall on the €1 billion of outlay in the same three quarters of 2023, but a significant reduction in comparison to previous years. The PRS transactions at €167 million represented just 18 per cent of the overall spend (a 30 per cent reduction on 2023), compared to offices at 25 per cent of the total, retail at 24 per cent and industrial at 18 per cent.
Although there were no new build PRS investment transactions in the first three quarters of 2024 in the greater Dublin area, there were six sales of stabilised stock comprising 297 residential units with a spend of €167 million. This represented just under 10 per cent of overall property investment spending in the third quarter of the year. The largest residential investment transaction was the sale of 136 standing stock properties in a north Dublin portfolio in Malahide at €70 million to a private purchaser, followed by 104 units in Shackleton, Lucan, west Dublin at €42 million to a new investor in the Irish residential sector, the German fund, KGAL. The KGAL acquisition, at a blended net yield of approximately 4.85 per cent, established a strong marker for pricing in the more suburban locations and should support pricing in other locations also.
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A number of forward sale PRS transactions, which were unconditionally signed in 2021 and 2022, have reached completion in 2024 and are now being delivered to the rental market. These transactions are recorded in the years they were contracted. They were already reflected in the unit counts for 2021 and 2022, based on the timing of the contract signings.
A mix of capital types, including private equity, value-added and core investors, are monitoring the Irish market and looking for opportunities. The expectation is that several large, stabilised developments will be brought to the market in 2025 and the reaction to these will be watched by the more than 27 investors with Irish portfolios and direct exposure to the private rental sector in Dublin.
Internationally, the sentiment and capital allocations towards the living sector, including PRS, have never been more favourable.
It will be the locations that create the right conditions for investment, and deliver opportunities for funding new construction, that will benefit from this new housing infrastructure in the coming years.
The future of the multifamily/PRS sector in Ireland will be significantly affected by government action to address the impediments and incentivise new funding and supply. The Department of Finance and senior government ministers have recognised the need for domestic and international capital to facilitate new housing development; it is now time for a strategy and policies to be enacted to foster the right conditions to create a sustainable private rental sector.
Ken MacDonald is managing director of Hooke & MacDonald.
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