Is Dublin’s property crisis finally being resolved?

With rents rising seemingly inexorably, and the supply of new homes being snapped up by an apparently never-ending supply of cash-rich investors, the housing crisis appears close to breaking point.

Indeed, the crisis has moved on from one where individuals found themselves increasingly cash-strapped after bearing the brunt of their rising rent, to one where companies are lobbying on their behalf.

Already, top tech companies like Stripe and Amazon have met to discuss the issue with Government, with Stripe having also warned that a shortage in housing in Dublin could be “a major impediment” to its future expansion in the city.

But there could be relief in sight, as construction finally picks up and the balance between supply and demand inches slowly to a more even footing.

“Our view is that the supply pipeline is picking up,” says John McCartney, director of Savills Ireland Research, but adds the qualifier that it is from a “very low base”.

How low this base actually is, however, has been a topic of much discussion, with figures of annual new builds ranging from about 11,000 to 19,000 a year, with the issue finally clarified with the recent publication of new statistics from the Central Statistics Office on the volume of house-building in Ireland.

“My sense is that clearly supply is picking up fast, and may well be coming from a higher base than some people think,” says McCartney, adding that there are various factors that may facilitate more rapid development going forward.

This includes the increasing sales of apartment blocks in one go to institutional buyers who will let the units out. Selling in one go allows developers to recycle their capital faster into additional construction, while other factors include the move towards fast-track planning and the easing of apartment design standards.

“So we’re obviously in an environment that is becoming more development-friendly,” says McCartney.

Of course, the obvious corollary to an uptick in development is whether or not the pendulum will swing too far in favour of building too much.

But for McCartney, this risk is mitigated somewhat by a number of things, including tight development finance.

Offices

On the commercial property side, the outlook is a lot different, with a far more finely tuned balance between demand and supply, which eases the risks of over-supply.

“We would see that the market is very different now to the last cycle,” says Marie Hunt, head of research with CBRE, noting that funding is “difficult to get”, which can put a break on schemes. Indeed, of the 58 or so schemes under construction in Dublin, many of these will have been pre-let already, or will have a grant of planning.

“It’s much more controlled,” says Hunt of properties coming to the market.

Office rents, having fallen to about €27.50 a square metre at their worst point, are now back up at around peak levels, at about €65. However, Hunt can’t see rents “going beyond” this level, and while the “odd example” may achieve rents in excess of this, it will be “virtually a flat line for the next couple of years”, she forecasts, with a potential dip around 2021/2022.

Brexit is another facet of today’s market, but as of yet, at least, while companies such as Barclays Bank and JP Morgan have announced expansion plans for Dublin, it has failed to deliver a significant number of new projects.

“It’s added a welcome layer of demand, but it’s not the primary driver,” says Hunt.

And while Brexit might posit some opportunities, there are risks emanating from the other side of the Atlantic.

“I think we need to be mindful of American tax policy; about 40 per cent of the take-up of offices in Dublin is attributed to US companies. I’d be mindful of the next wave of US investment coming through – will those companies be reticent to expand [here]?” she asks.

Another trend is the arrival of co-working spaces, through operators like WeWork and Iconic.

This flexible approach, which allows start-ups and established companies alike to rent extra office space, is “shaping up the market”, says Hunt.

One such provider is Glandore, which has recently announced the launch of two new flexible workspace locations in Dublin, at Fitzwilliam Court and Fitzwilliam Place, bringing the company’s total capacity in Ireland to 2,500 desks in a mix of co-working and private office space.

According to director Clare Kelly, the drive towards flexible workspaces is in part due to allowing companies to scale in line with their business needs, “whilst minimising exposure to long-term leases and large capital expenditure”.

“The increase in the number of start-ups, SMEs and the rise of the freelance economy post-recession is also driving the demand for cost-effective, flexible workspace,” she adds.

Changes in accountancy standards , following the introduction of new lease accounting standards in January 2019, may also be a driver, as these will require occupiers to capitalise rental liabilities on their balance sheets with the exception of leases or licences under 12 months, says Kelly, thereby increasing the appeal of flexible workspace as an alternative to long-term leases.

Outside of Dublin, however, the landscape is different, with less purpose-built office accommodation being built.

“It’s much more challenging to build outside of Dublin; it costs the same to develop but the rent is significantly less,” Hunt says.