Dublin investment market dominated by private rented sector in 2019

Build-to-rent sector poised for five years’ sustained growth in capital and other cities

The private rented sector (PRS) took the market by storm in 2019, outpacing and outperforming all other sectors. It has grown from just 6 per cent of the Dublin market in 2016, 17 per cent in 2017, 31 per cent in 2018 to 55 per cent in the first nine months of 2019 and is on track to finish the year with close to €2 billion in transactions. There has been €1.3 billion transacted in the first three quarters across 25 PRS transactions with a further €600 million sale agreed.

Despite this impressive progress in the build-to-rent (BTR) sector the startling fact is that it is still in its infancy and is set for a five-year period of sustained growth, not just in Dublin but also in Cork, Galway and Limerick, but this is dependent on the conditions for it to thrive being in place.

Since the start of 2016, of the 6,351 private rented sector units traded in Dublin, 2,726 of them were new build and 3,625 were older stock. The new build element is only a drop in the ocean compared to the amount of accommodation required to satisfy the rental demand of an expanding population and the country’s economic wellbeing.

The mystery is that the providers of rental accommodation, which is directly contributing to a moderating trend in rental costs, are not given credit for their input into easing the problems in the housing market. On the contrary, they operate at times in a fairly hostile environment from several quarters who fail to recognise the PRS/BTR sector is not the problem but part of the solution.


Several phases

The private rented sector has come through several phases in the last 70 years, starting with the era of the Rent Restrictions Act, 1960, which led to thousands of properties in cities and towns falling into dereliction until solicitor Paddy Madigan challenged it in the courts and the legislation was overturned. We then had the introduction of tax incentives in 1981 in order to achieve an increase in rental supply and the modernisation of the sector. This was hugely successful in attracting small private investors into the market in a way that was cost effective for the State until, for political reasons, it was unfortunately extended to every corner of Ireland instead of being confined to urban locations of housing need.

The penal taxation treatment of small investors – which has caused a flood of them out of the sector – has been a catastrophe for the supply of rental accommodation over the past decade. It has directly contributed to the high rents that are now prevalent and also to homelessness, coinciding as it did with the ending of local authority housing construction for those in need of it.

Irish developers stepped forward to fill this void but they could only do so if they could have buyers in place in advance of construction to fund the projects. Irish and international investors were invited to purchase these developments at foundation stage thus enabling the developers to access funding. The first of these was the sale by the Cosgrave Group three years ago of the Neptune Building at Honeypark, Dún Laoghaire to SW3 Capital and Tristan Capital Partners for €72.5 million.

A significant factor about new build-to-rent projects that are under way is how they differ from most of the apartment developments previously built in Ireland. They are different in scale, design, management and ownership structures.

Creating vibrant communities is a guiding principle with the provision of the right level of shared amenities, both internally and externally being vital to their success. Providing a resident-focused service and management are critical to creating a community atmosphere and retaining long-term residents. To reduce maintenance and protect, the value of the property, fixtures, fittings and soft furnishings in both the apartments and communal areas tend to be of high quality and durable.

Higher density

Successful build-to-rent developments generally are located with good access to public transport, local services and amenities. They usually have higher density, with a lot of thought going into the design and layout in order to attract interest at acceptable yields. Based on the six most recent new build PRS apartment transactions in Dublin, gross yields averaged 5.35 per cent and net yields averaged 4.03 per cent. An interesting trend of the past year is that an increasing number of transactions are taking place off-market.

There were a number of notable PRS sales in Dublin in 2019 including the sale of 214 apartments at the Fairway, Cualanor, Dún Laoghaire, by the Cosgrave Group to DWS for €108 million. The 268 apartments at Dublin Landings, North Docklands, which was developed by Ballymore and its Singapore-headquartered partners, Oxley, sold for €175.5 million to Greystar. The Quarter at Citywest, Dublin 24, which is being developed by Cairn Homes, sold for €94 million to Urbeo. Mount Argus, Harold's Cross, Dublin 6W, compromising of 166 apartments, which is being developed by the Marlet Property Group, was purchased by Patrizia for €93 million. The Benson Building in Grand Canal Dock, which transacted for 52.5 million, was also purchased by Patrizia.

In the largest PRS deal of the year I-Res Reit purchased a portfolio of 815 residential units across 16 developments from Bryant Park QIAF ICAV, acting for and on behalf of Marathon for €285 million. Fifteen of the developments included in the "XVI" portfolio are located in Dublin, comprising of 765 residential units (94 per cent of the portfolio).