Development land in Ireland has shown a deep resilience in 2022 with sales totalling €337 million by the end of September, just slightly behind 2021 year on year. Total sales for 2022 could, however, still be on a par with, or even higher than, 2021 if a number of significant high-profile sales currently in the pipeline close before the end of the year. Quite a number of these sales, which are currently sale agreed, have been negotiated off-market – a trend we expect to continue into 2023.
There have been several key development land sales throughout 2022, including the €50 million sale of 118 acres of land at Cherryhound to the Irish commercial property company Iput, which transacted earlier this year. This deal is testament to the significant depth in buyer pool for industrial/general employment zoned land, underpinned by the current demand in the logistics sector.
Prime city-centre office development sites have been trading less frequently than in previous years, mainly due to a lack of opportunities as opposed to any significant fall-off in demand. As investors increasingly focus on their ESG (environmental, social and governance) requirements, we expect more developers and landlords to examine how existing secondary stock might be repurposed.
This demand for commercial development opportunities generally is likely to continue, but pricing will be impacted by recent interest rate rises, an adjustment to commercial property prime yields and a more challenging funding environment.
That being said, certain sites have continued to perform strongly throughout the year. Builders and developers are consistently in the market for medium/large-scale residential sites (primarily with planning), once those sites are not frustrated by infrastructure constraints. Sites with planning for predominantly housing-led schemes have traded exceptionally well and, for the most part, have been achieving reasonably strong pricing. The depth of the buyer pool for this type of property is still quite strong and, given the continued shortage of housing supply and the high demand for same, is a trend we also expect to continue into 2023 and beyond.
Despite the robustness it has displayed, the market has not been immune to the economic headwinds that hit in 2022. These include the war in Ukraine, continued construction cost inflation and recent interest rate hikes, all of which have made the development land market more challenging, over the last few months in particular. While tumultuous economic factors are very much out of our hands, there is one thing which will really bolster activity in the market and is very much within our power to fix: Ireland’s planning environment.
Ireland’s planning system is hampering the country’s land development prospects on many different levels. That system is characterised by a drawn-out process, a universal and rigid approach to density requirements, a reluctance to allow buildings of substantial height in some city-centre locations, and the high level of instances in which planning permissions are being judicially reviewed. A greater willingness to acknowledge these planning issues and adopt significant reform is needed; this is particularly crucial in the midst of a housing crisis.
The fall in the amount of zoned land in Dublin and the greater Dublin area – including Meath, Kildare and Wicklow – is having, and will continue to have, a negative impact on the opportunity for development. When compared with current and previous county development plans, the reduction in zoned land in these locations is equivalent to the loss of more than 100,000 housing units, or 10 years’ supply. Uncertainty in the development land market has arguably never been higher and cutting the supply of land at this juncture adds a further challenge into the mix and is unwarranted given the huge shortage of housing in this country.
The coming year will also see more focus on the residential zoned land tax, which was introduced by the Finance Act 2021 and which will be administered by Revenue. It is essentially an annual tax which is calculated at 3 per cent of the market value of land within its scope, with the market value being a self-assessment process by the landowner, who will become liable for the tax from January 1st, 2024. While the intentions of the tax to activate land that is serviced and zoned for residential use in order to increase housing supply may be admirable, I fear it’s just another added tax that will make viability even more challenging in certain instances. We need to recognise that developers want to and need to develop housing. Invariably, it’s other factors, such as the aforementioned planning landscape or infrastructure deficiencies, that are some of the main contributing preventative factors. The focus, therefore, needs to be more on creating a more workable environment before introducing further penal measures.
Nevertheless, 2023 and beyond will still see plenty of transactions in the development land sector, and we expect a significant number of these to take place on an off-market basis until there is more certainty on a number of the key metrics which impact underlying land values. We also expect a number of vendors to be more creative in relation to deal structures, be they subject to planning, joint venture agreements or the re-emergence of licence agreements. Despite the various headwinds, we believe 2023 will be a good year for the development land market.
John Swarbrigg is director of development, agency and consultancy at Savills Ireland