€1.2bn invested in Dublin private rented sector despite Covid-19

A new report on Dublin’s private rented sector (PRS) shows it registered a robust level of investment activity in 2020, with 2,309 residential properties sold across 19 main transactions for a total of €1.2 billion.

Although the figure represents a decrease of 49 per cent on the record €2.36 billion invested in the sector in 2019, the performance is significant when set against the unprecedented impact of Covid-19 on the commercial property market and the wider economy. Also worth noting is the fact that the €1.2 billion spent on the PRS sector in the face of the pandemic outstripped the €930 million invested in 2018 by a factor of 23 per cent.

The latest Dublin residential investment report from agent Hooke & MacDonald shows the capital’s private rented sector or multi-family market continued to consolidate in 2020, with the third and fourth quarters proving to be particularly active. Having shared equal billing with the office sector in the first half of the year, with both accounting for a respective 40 per cent of all Dublin investment transactions, the PRS sector moved ahead in the third and fourth quarters, taking a 53 per cent share of the overall market. The office sector, in contrast, fell back to 29 per cent in the same period, followed by industrial at 13 per cent and retail at 4 per cent.

The largest residential investment transaction of the year saw the Cosgrave Property Group securing about €200 million in July from the forward sale of 368 apartments at Cualanor, Dún Laoghaire to SW3 Capital/DWS. The transaction was completed less than a week after the same parties had paid the MKN Property Group €145 million in an off-market deal for the Prestige portfolio, a mix of 317 residential units spread across four developments in north Dublin.

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Notable

Other notable transactions included the Cosgrave Property Group’s sale in November of 297 apartments at Blackwood Square, Northwood, Santry for €123.5 million, and Park Developments’ sale of 192 apartments at Clay Farm in Leopardstown to Urbeo for €75 million.

The final quarter of 2020 saw four further deals: an off-market portfolio forward sale in three locations of 300 properties for €140 million; the sale of 146 residential properties by Flynn & O'Flaherty at the Phoenix Park Racecourse in Castleknock to Ires Reit for €60 million; the forward sale of 94 apartments by Winterbrook at Harbour Road, Dalkey to Irish Life Investment Managers (ILIM) for €54 million; and the investor-to-investor portfolio sale of 151 existing stock apartments by Ires Reit to Orange Capital for €48 million.

But where these and other transactions have to date involved schemes aimed mainly towards servicing the traditional private rented sector market, the Hooke & MacDonald report says that the provision of social housing through long-term lease agreements with local authorities and approved housing bodies (AHBs) is set to feature more regularly in the deals done over the coming years.

Commenting on this , the report’s authors say: “There is increasing focus by developers in the social sector. The net yields are sub-4 per cent for new stock based on secure long leases with the discounted rents, and this pricing is attractive to both vendors and purchasers.”

Perspective

To put the yields on offer in the social sector in perspective, an analysis by Hooke & MacDonald of the yield trends for 17 leading PRS transactions across the Dublin market for new-build forward sale apartment projects of over 100 units sold between the third quarter of 2016 and the end of 2020 shows that prime yields have remained steady at around 3.75 per cent. The review included a total of € 1.85 billion of investment sales, relating to 4,026 apartments with an average lot size of 237 apartments and sale price of € 109 million, equating to an average apartment price of €468,000.

While the increasing involvement of institutional investors such as pension and sovereign wealth funds in the financing and ownership of social housing will no doubt be met with criticism from some quarters, the report’s authors argue that the State needs all sectors of the property market to be operating at full pace to increase the supply of both private and social housing for the owner-occupier and rental markets.

Referring to the estimates produced by various forecasters suggesting Ireland needs to have between 35,000 and 50,000 new houses and apartments built per annum, Hooke & MacDonald notes that just under 20,000 units were completed in 2020. with a further 22,000 units being forecast for delivery in 2021.