The private rented sector weathered 2020 with considerable resilience. Internationally, multi-family is now recognised as a mainstream investment category, as a long-term and stable asset class, with low vacancy and voids. In an Irish context the market has shown consistent strength and maturity underpinned by sound fundamentals – low vacancy rates and positive portfolio performance, a rising population, a significant imbalance between supply and demand and government policy supportive of the housing market.
This is helping to offset the loss of small investors, who are exiting the private rented sector. An increasing allocation of funds – such as pension funds and sovereign wealth investors – is now being diverted by long-term holders towards the residential investment sector, and this is supporting pricing and yield assumptions in Dublin. One can see why this sector has an important role to play in Ireland for the next few years at least.
The Government’s recent budget was very supportive of the housing market, with several significant measures to boost supply in both the public and private sectors. Multi-family/private rented sector is now generally recognised as part of the solution to the housing crisis rather than part of the problem.
However, the main drawback to realising its full potential is the lack of viability on potential new developments on hundreds of sites that have planning permission in parts of Dublin, Cork, Galway and Limerick. Without viability, these developments cannot be funded or started and the permissions will wither. There is a damaging misconception among many commentators that every site that has planning permission can be developed. Viability needs to be addressed as a matter of urgency to alleviate the shortage of rental accommodation in urban centres.
The private rented sector in Dublin continued to consolidate in the third and fourth quarters of 2020. Investor demand for good properties remained strong. A number of major transactions have been signed or closed.
There were 1,971 multi-family/private rented sector units sold in Dublin in 2020 across 15 main transactions, for a total of €854 million. Some 75 per cent (1,481) of these were new-build properties, while 25 per cent (490) were existing stock.
The largest residential investment transaction of the year was the forward sale of 368 apartments by Cosgrave Property Group at Cualanor, Dún Laoghaire for more than the guide price of €195 million. Notably, this was also the largest investment transaction of the year in Dublin across all asset classes.
An off-market transaction comprising 317 residential units spread over four developments in north Dublin achieved about €145 million. The next largest transaction was the sale of 297 apartments in November at Blackwood Square, Northwood, Santry, by the Cosgraves to Round Hill Capital and QuadReal Property Group for €123.5 million through Hooke & MacDonald. There were also 192 apartments sold at Clay Farm, Leopardstown, by Park Developments in a €75 million transaction.
Flurry of activity
The flurry of activity in the final quarter also had three further transactions, a sale of 146 residential units by Flynn & O'Flaherty at the Phoenix Park Racecourse in Castleknock to Ires reit for €60 million, a forward sale of 94 apartments by Winterbrook at Harbour Road, Dalkey, to Irish Life Investment Managers for €49 million and the investor-to-investor portfolio sale of 151 existing stock apartments by Ires Reit to Orange Capital for €48 million.
While most of the transactions in the market are forward sales, there are opportunities emerging for some forward funding.
In terms of overall Dublin investment transactions, private rented sector properties led the way in 2019 with 44 per cent of all, followed by offices at 32 per cent. The likelihood is that the private rented sector will finish on top again in 2020 at more than 50 per cent of all transactions and grossing close to €1 billion. The prospects for 2021 are positive and there are likely to be a number of significant sales announced in early 2021.
Ken MacDonald is managing director at Hooke & MacDonald