Has Dublin built too many luxury apartments?

It’s not what one might expect in the midst of a prolonged pandemic. Property prices, we’ve been told, continue to rise because the people most affected by the pandemic, such as those working in retail or hospitality, typically rent rather than buy a home.

Yet, as last week’s annual results from Ires Reit show, the rental market is far from a poor relation.

The property company styles itself as mid-tier investor, focusing on the “affordable market”. With an average monthly rent of €1,624 however, it’s not quite what many would deem “affordable”.

The mid-tier may be just where the resilience is. Despite Covid-19 related restrictions, which have sharply inhibited the potential for rent increases, as well as the hundreds of thousands of workers out of work and dependent on State payments, Ires Reit looks to be holding its own.

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With an occupancy rate of 98.4 per cent for 2020 (compared with 98.3 for 2019), just 59 of its properties were empty during the year, while 98.9 per cent of residential rents were collected, it says.

Some landlords are now offering rent-free periods to entice putative tenants

Not only that, but the property investor recently told analysts that it has had "minimal" requests for a reduction in rent due to the pandemic. It even managed to increase average rents by 1.8 per cent, with rental income climbing by 18.3 per cent to €59.8 million. The outsized increase in total rent is due largely to the acquisition of the 815-unit Marathon Portfolio in 2019, but it's also benefited from rent reviews when tenants moved on, as well as newly constructed units coming to the market such as at Hansfield Wood.

Rent pressure zone rules don’t apply on units which have never been let before, which means Ires Reit can set market rates on such properties.

The investor also likely continues to benefit from the State’s Housing Assistance Programme (HAP), which pays a proportion of a tenant’s rent. Back in 2018, it disclosed that about 11 per cent of all residents were social tenancies.

Luxury bites

But if occupancy remains steady in the mid-tier market in spite of the pandemic, the upper tier is finding the virus trickier to navigate. And nowhere is this more evident than in Dublin’s docklands.

A recent report from docklands agent Owen Reilly found that rents in the area had fallen by, on average, 13 per cent between last March and year-end, "and even more at the upper end of the market [where monthly rent is over €3,000]".

Another report from Goodbody Stockbrokers pointed to high levels of vacancy – about 30 per cent – in newly built luxury developments alongside significant tenant incentives. Some landlords are now offering rent-free periods to entice putative tenants.

The amenities offered to justify the high rents, including cinema rooms and gyms, are all closed due to Covid-19 restrictions.

The area has found itself in the midst of an almost perfect storm. Short-term lettings have collapsed, pushing stock on to the long-term market. Mobile executives, who may have looked for a docklands base in Dublin while keeping a home elsewhere, are now locked into their home country. Young tech workers have taken the opportunity to return to France, or Italy or Poland for the duration of the pandemic, while many from outside Dublin have moved back home.

While some may have planned to return in January, and start renting once more in the city, these plans have now been pushed out. And the amenities offered to justify the high rents, including cinema rooms and gyms, are all closed due to Covid-19 restrictions.

Much city centre development, a lot of it funded by institutional investors in recent years, has been at this high end. The area is now home to thousands of apartments aimed at the rental sector, most of which are “affordable” only to a select cohort.

From Opus 6 (two-beds from €3,300 a month), to Capital Dock (two-beds from €2,970 a month) to Ropemaker Place (two-bed duplex from €3,200 a month), Dublin has splurged on ritzy apartments in recent years.

And even more are expected to come on stream, including apartments at Spencer Place as well as "the jewel of the docklands", the Benson Building on Grand Canal Dock. A pause in construction on the back of Covid-19 may slow down the pipeline, but there is more to come.

There must now be a risk of a glut at the top end of the market – at least in the short to medium term. Figures compiled by Goodbody show that about 45 per cent of properties available for rent in Dublin have rents in excess of €2,000. With the fallout from Covid-19 perhaps yet to fully materialise, the potential market for these units must have shrunk.

To go back to Ires Reit, no one is predicting much growth in the Irish rental market anytime soon. Goodbody is even forecasting “modest declines” of about 2 per cent a year for 2021 or 2022. But not for the mid-market; it is forecasting rental growth of about 3 per cent for Ires Reit this year.

The future, it seems, is in the middle. It’s only a wonder that developers and investors didn’t consider this some time before.

5km rule

As an interesting aside, Ires Reit also offers an insight into the 5km rule which is frustrating an increasing number of otherwise compliant Covid-19 regulation followers.

In its annual results, the property company says the current ban on evictions, provided for by the Residential Tenancies Act, only applies when there is a 5km travel restriction in place. Once it lifts – and presumably this would mean an increase to 10km for example – evictions can take place once more.

The question then, perhaps, is are we tied to the 5km rule just so a rule on evictions can remain in place? And why should this be the case?