Ongoing housing shortage drives demand for development land
Strong owner-occupier and rental markets drawing Irish and international investors
The former Murphy & Gunn BMW car showroom site in Milltown, Dublin 6, was sold to Rohan Holdings for €7m.
After a buoyant market in 2019 the development land sector witnessed a significant reduction in transactions with the onset of Covid-19. The first lockdown represented uncharted waters for everyone with vendors and purchasers adopting a wait-and-see approach. Unfortunately, the virus was not subdued as quickly as had been hoped.
As we approach year’s end however, the land market has started trading again with strong demand in certain sectors. Our office has traded more than € 60 million in land sales in the past six weeks. The vast majority of transactions are in the sub-€ 20 million bracket and this is understandable as landowning vendors have been more cautious about introducing larger sites to the market.
Demand in the residential land sector is very strong. This is underpinned by the significant undersupply in housing stock with very strong new home sales throughout the pandemic. The Government’s extension of the help-to-buy scheme was an important support, while the continued availability of mortgages was very encouraging. With the general acceptance that some element of working from home will become the norm in certain workplaces, house buyers appear more willing to commute a greater distance for the remainder of the week in order to secure their dream home. We are therefore witnessing a strong demand for medium-density housing sites in commuter locations.
Housing sites with planning are commanding top value, and if funders curtail their exposure over the next 12 months, we expect that demand for sites with permission for viable development will obtain premium prices. There is now a wider spread of properly-capitalised site purchasers in the market making it less reliant on the PLC buyers, which is a positive for the sector and housing market supply.
The demand for private rented sector sites remains very strong with large numbers of international investors seeking to deploy significant capital into the Irish market. Numerous forward purchases of schemes have taken place and we are seeing real traction in the forward-fund sector which could increase supply significantly.
The office market has witnessed an unprecedented nine months and it is still too early to determine the pandemic’s impact on office sites. After the initial novelty of working from home it’s clear that many industries need an office environment in which to flourish. Home working is not a viable option for many workers as the idea-creating environment that office space nurtures cannot be recreated remotely. Office take-up is below average for the year but encouragingly, rents have remained strong. We went into the pandemic with a sub 5 per cent vacancy rate and as many of the office developments under construction are pre -let we expect to see a significant increase in take-up in 2021.
The industrial sector has remained very strong with excellent demand from both Irish and international developers for quality industrial land banks. There has also been very encouraging demand from owner occupiers looking to secure sites to develop their own facilities.
While it has been a year that nobody could have predicted, I was very glad to see how resilient land sales and values have remained. There remains significant demand for quality sites and many purchasers are offering to purchase without a requirement for finance on site acquisition, which is very positive for the market outlook for 2021
- Evan Lonergan is a director at Knight Frank specialising in development land