Alternative Investment In Ireland 2017 - Future Analytics Consulting
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Alternative Investment In Ireland 2017
CONTENTS
3
1 9
BUILD TO RENT (BTR)
INTRODUCTION
PURPOSE BUILT
STUDENT
ACCOMMODATION
(PBSA)
Alternative
Investment
In Ireland
A publication from CBRE and
Future Analytics Consulting
15
21
HEALTHCARE
SUMMARY &
CONCLUSION
Front Cover Image:
Vantage Apartment Complex, Sandyford, Dublin 18 | Kennedy Wilson
INTRODUCTION 1 ALTERNATIVE INVESTMENT SECTORS
INTRODUCTION
“Increased interest
in, and demand
for, investment in
new niche areas of
real estate where
returns are driven
by emerging macro- Over the last number of years, investors investors lessen reliance on traditional
trends and which as a globally have become increasingly forms of investment and seek to
consequence tend to interested in ‘alternative’ routes to generate higher returns and diversify
investment in real estate as they seek investment across new geographies
have countercyclical to generate better returns and diversify and sectors. In the Irish hotel sector,
characteristics” their investment portfolios. Moving away the majority of hotels have traditionally
somewhat from the traditional office changed hands as trading entities to
and retail sectors, which heretofore specialist hotel operators. However,
have dominated investor wish lists, we there has been increased demand in the
have seen increased interest in, and last two years for hotel investment and
demand for, investment in new niche forward-funding opportunities from a
areas of real estate where returns range of new investor types. Investment
are driven by emerging macro-trends in multifamily residential (which didn’t
and which as a consequence tend to exist as a mainstream investment sector
have countercyclical characteristics. in Ireland five years ago) has also been
In addition to direct investment in increasing in popularity, accounting
alternative sectors, there has also been for 6% of overall investment spend
increasing evidence of demand for in Ireland in 2016, up from 4% the
investment in indirect vehicles such as previous year.
dedicated funds focussing on specialist
sectors including student housing, senior There is a plethora of sector types that
housing and infrastructure amongst come under the ‘alternative’ umbrella,
others. We have also seen some real all of which are at different stages of
estate firms establishing dedicated maturity in markets across Europe. In the
alternative investment teams within their Irish market, the sectors that are as yet
organisations. at an embryonic stage but of particular
interest to investors and developers at
This trend towards investment in present are generally ones which are
alternative sectors has been widespread clearly undersupplied locally, including:
across Europe over the last two years
and has also been gaining momentum
in the UK. According to Real Capital
Analytics (RCA), more than €30 billion • BUILD TO RENT (BTR)
was invested in alternative sectors
in Europe in 2016, representing • PURPOSE-BUILT STUDENT
approximately 15% of all income- ACCOMMODATION (PBSA)
producing commercial real estate
transactions completed in the year. • HEALTHCARE
Meanwhile, there is currently more than
£27 billion targeting the Build to Rent Within this report, we explore each
sector in the UK alone. of these specific forms of alternative
investment, explaining the concept
The demand for alternative forms and considering its relevance and
of investment has recently started to sustainability in an Irish context
enter the lexicon in an Irish context as specifically.
ALTERNATIVE INVESTMENT SECTORS 2
BUILD TO RENT Residents Lounge, Clancy Quay, Apartment Complex, Dublin 8 | Kennedy Wilson 3 ALTERNATIVE INVESTMENT SECTORS
497,000
BUILD-TO-RENT
Irish households renting
in 2016
WHAT IS BUILD TO RENT? income potential and is less susceptible
to cyclical variations than other
The concept of ‘Build to Rent’ is one that traditional real estate sectors.
is firmly established in many jurisdictions
such as the US, where it is now regarded HOUSING TENURE
as a mainstream sector offering superior
returns to other more traditional forms Although Ireland has traditionally
of investment. Build to Rent has gained been associated with high levels of
popularity in Europe and in the UK in homeownership, this has been changing
recent years but is as yet only at an over recent decades. Indeed, according
embryonic stage in the Irish market. This to the most recent Census of Population
is about to change as the Irish housing 2016, 29% of Ireland’s population are
sector becomes professionalised and now renting their accommodation, with
delivery increasingly supported and higher rates observed in the principal
delivered by institutional capital. cities (36% in Dublin for instance). Over
497,000 households in Ireland are now
Build to Rent describes the practice renting, rebalancing the proportion of
of delivering purpose-built residential households who are owner-occupied vs.
rental accommodation that is designed renting, from almost an 80:20 split to a
with the sole purpose of being used as 70:30 split (between 2006 and 2016).
long-term rental accommodation and
professionally owned and managed by
an institutional landlord. Build to Rent
schemes are generally of a very high Homeownership vs Renting
quality design and with ready access
to amenities such as resident lounges,
entertainment space, gyms and cinema
rooms as well as being located close to
80:20 2006
70:30 2016
good quality public transport. Amenities
are generally provided within the overall
development with a high degree of
public space provided to facilitate
socialising and foster community. Good There are a number of factors behind
quality in-house management are on this level of rapid expansion in the
hand to take care of maintenance and ten years to 2016, with an additional
provide a high level of support for 174,000 households becoming renters
residents within the development with (a 54% increase on 2006 figures).
on-site managers in many schemes. Though this rate of change comes
Residents within Build to Rent schemes largely as a result of the buoyant
are willing to pay a premium for the economic conditions during some
additional benefits that living in a of that period (the driving down of
high quality purpose-built scheme that residential rents in particular, as well as
is tailored to their needs offers over ample supply), the sector has continued
traditional rental accommodation. to grow steadily since 2011, with an
Investors on the other hand are attracted increase of +22,300 households or 5%
to a sector that offers stable long-term in the last five years (2011 to 2016).
ALTERNATIVE INVESTMENT SECTORS 4
+22,300
households in Ireland
renting in the last 5 years
Interestingly, the distribution of the
rate of change towards renting across
Ireland is not confined to just the Clancy Quay, Apartment Complex, Dublin 8 | Kennedy Wilson
traditional commuter-belt counties
surrounding Dublin and Cork.
Considering the dearth of new home
Counties throughout the country
construction in Ireland over the last
displayed a change of between
3.4% few years and the fact thatClancy Quay, Apartment Comp
29.5%
+30% and +103% in their number
of Ireland’s population are aged
of households renting between 2006
between 25-44 (one of the highest
and 2016. The relative proportion of increase in Ireland’s population proportions in the EU), the need to
those renting in 2016 does vary across from 4.588 million in 2011 to
4.762 million in 2016 provide purpose-built Build to Rent
the country however, with the more
stock in cities such as Dublin is clearly
urbanised centres naturally holding
evident. It is therefore no surprise
higher shares overall (Dublin City entering the rental sector by 2021 that a large number of investors
44%, Cork City 45%, Galway City would not be unlikely – should supply and accommodation providers are
48%, Limerick City 29% and Waterford not fall further behind. It is anticipated now focussing on opportunities to
30%). However, most counties are however, that the rate of change is provide Build to Rent accommodation
within a few percentage points of the likely to be higher when sufficient in Ireland. Some investors are
national figure of 29%. supply materialises, due to the level of focussed on opportunities to fund the
pent-up demand for accommodation. development of Build to Rent schemes.
In addition, there has been an increase
in the population in the most recent THE NEED FOR BUILD TO RENT Others are focussed on opportunities
intercensal period from 4.588 million to fund, develop, own and manage
nationally in 2011 to 4.762 million A large proportion of the Irish schemes while others are interested in
in 2016 (+3.4%). Dublin’s own population are likely to continue to owning schemes that are developed
population has increased by 5.8% aspire to home ownership. However, and operated by others.
alone, from 1.273 million to 1.347 for many of this cohort, this will have
million in 2016. to be delayed until such time as they BUILD TO RENT IN IRELAND
have saved the necessary deposit
Estimating a probable trajectory for and they will require access to rental While multifamily residential has
rental growth requires assumptions of accommodation in the interim. emerged as a mainstream investment
supply and affordability. However, if For others, such as the millennial class in Ireland over the last five years,
simply extrapolating from the observed generation or the large proportion the product that has traded up until
2011 to 2016 rate of change, an of transient workers, renting is an now has largely comprised residential
additional +23,300 households increasingly acceptable form of tenure. schemes that were originally designed
5 ALTERNATIVE INVESTMENT SECTORS
BUILD-TO-RENT
to be sold individually as private homes This is despite the fact that the Irish
but were subsequently adapted or population has continued to grow in
converted for rental purposes. Many the last decade and there is a growing
multifamily investors took advantage propensity for the Irish population to rent
of the opportunity to purchase these accommodation as is evident from the
schemes at below replacement cost most recent Census of Population.
despite the fact that the design of the
schemes was somewhat removed from NEW SUPPLY
“Potential for an traditional ‘Build to Rent’ stock. Many of
According to the Central Statistics
these specialist investors would clearly
additional 23,300 have had a preference for delivering Office, planning permission for 16,375
households renting purpose-built rental product but were new homes was granted across Ireland
restricted from doing so due to the during 2016; a 25% increase on 2015.
by 2021” fact that residential delivery in Ireland 42% of these homes (6,835) will be
was compromised from a viability located in Dublin. Of the national
perspective, particularly for apartment figure, 50% are in multi-development
development in larger cities including schemes (8,251), 26% are one off
plex, Dublin 8 | Kennedy Wilson
Dublin. houses (4,230) and 24% are private
flats/apartments (3,894). In Dublin,
Residential delivery has effectively 49% are for multi-development schemes
ground to a halt in the Irish market in (3,357), 5% are one off houses (337)
recent years with a severe scarcity of and 46% are private flats/apartments
modern rental accommodation in the (3,141).
Dublin market now clearly evident.
PLANNING APPLICATIONS FOR NEW HOMES 2016
Dublin Outside Dublin
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Multi-development One-off houses Private apartments
schemes
Source: Central Statistics Office
ALTERNATIVE INVESTMENT SECTORS 6
“Build to Rent
product is designed,
valued, managed,
purchased and sold in
High volume activity is localised Government are now largely supportive
around Dublin and the Greater Dublin of the delivery of large-scale purpose- a different manner to
Area (GDA), but despite the uptake built accommodation to service the traditional residential
in granted applications (and unit rental sector. The Minister for Housing
volumes), the pace of construction for has acknowledged that Build to Rent
investment”
these applications remains slow, with projects will have an important role to
extensions and alterations occurring play in addressing critical shortages
with some frequency (the changing of a of rental accommodation in areas of
scheme’s unit mix and total amount to high demand and has instructed local
best suit changing demand). Statistics authorities and planners to prioritise
from the Department of Housing the delivery of these schemes. We
(obtained by proxy via electricity can therefore expect to see increased
connections) indicate that fewer than focus on the delivery of Build to Rent
15,000 units were ‘completed’ in in the Irish market over the coming
2016 – many of which are lagged years. It is important to stress however
developments from preceding years. that Build to Rent is a specialist sector.
However, this figure is an 18% increase Build to Rent product is designed,
on 2015’s completions and a 36% valued, managed, purchased and sold
increase on 2013’s completions; the in a different manner to traditional
general trend therefore, is towards larger residential investment and stakeholders
volumes of housing being delivered. need to familiarise themselves with the
inherent differences. Even for those
GOVERNMENT SUPPORT that have invested in this sector in other
jurisdictions, the Irish market will prove
Considering the seriousness of the quite different due to differences in the
imbalance between supply and demand market structure, legislation, design &
in the Irish housing market, the Irish building regulations and planning.
Residents Gym, Vantage Apartment Scheme, Sandyford, Dublin 18 | Kennedy Wilson
7 ALTERNATIVE INVESTMENT SECTORSBUILD-TO-RENT
HOW IS BUILD TO RENT DIFFERENT? be on providing accommodation for increased by 2.6% to just over 46%
the millennial generation and transient of an individual’s total disposable
Underwriting a Build to Rent workers where the shortage of rental income (income after tax), confirming
development will also be largely accommodation is particularly acute. that renting in Dublin is becoming
different to the traditional lending increasingly unaffordable, due to
model for the residential sector. There The management of the Build to the current constraints in supply. A
will generally be a need for short-term Rent model is also quite different threshold of 25% to 35% of disposable
debt to fund the development phase to traditional residential schemes income is commonly utilised to plan
and longer term debt or institutional with management more akin to for affordability (either through rent or
capital to fund the stabilised asset service based industries. Bespoke mortgage repayments). An assessment
in due course. Hybrid products will technology packages enable residents of target rents against regional
invariably materialise as this sector to book accommodation, share disposable incomes should play a
matures. In any event, the Build to Rent documentation, report maintenance factor if long-term sustainability is to
sector will be of interest to a range of issues and book amenity space within be effectively prioritised.
funding providers whether focussed on their developments in a seamless
the provision of development finance, manner. Those managing the schemes
mezzanine debt or lending against can also use the technology to improve “A key focus for the Irish
stabilised income streams. efficiencies and issue push notifications
and communicate efficiently with
market is ensuring that
From a design perspective, the end residents. Build to Rent schemes
product is designed with the end user
or long-term renter in mind. Most Build Although it is clear that there are can achieve and sustain
to Rent schemes incorporate a high severe supply shortages in the Irish rental values that make
proportion of common space to foster housing sector which supports the
a sense of community, which is so need for Build to Rent in the Irish the development stack
important to the Build to Rent concept. market, those investing in this sector up from a viability
Another key focus is to incorporate a will require high quality research in
high degree of flexibility to ensure that relation to demographics, comparable perspective”
common space can be adapted to rental information and supply/demand
suit the specific needs of those living analysis to be able to underwrite
within the development and to allow investment and development decisions.
different household types live side by
side within a development. Flexibility Affordability in the private rental It is clear that the Build to Rent concept
is required to ensure that the buildings sector is very sensitive to changes in has a role to play in addressing
and amenities can be adapted to the proportion of rent required from Ireland’s severe housing shortage.
accommodate how people live, work, an individual’s available disposable Rather than focussing on replicating
socialise and enjoy environments. income. Average monthly income per Build to Rent models that have worked
When operating efficiently, as individual has risen by approximately well in other jurisdictions such as the
evidenced in other jurisdictions such 4% in the two years from 2012 to US, we need to create a model that
as the US, Build to Rent provides a 2014 according to the CSO. In that works best for the local target market.
housing solution for a broad range of same time, average monthly rents A key focus for the Irish market is
potential end users regardless of their (for a one bed tenancy) have risen by ensuring that Build to Rent schemes
age or family circumstance. However, 10.5% according to the Residential can achieve and sustain rental values
in the case of Ireland and Dublin in Tenancies Board. Therefore, rent that make the development stack up
particular, the focus initially is likely to as a proportion of income has from a viability perspective.
ALTERNATIVE INVESTMENT SECTORS 8PURPOSE-BUILT STUDENT
ACCOMMODATION (PBSA)
The Binary Hub Student Accommodation Scheme, Dublin 8 | Hines Ireland
9 ALTERNATIVE INVESTMENT SECTORSPURPOSE-BUILT STUDENT ACCOMMODATION
“The purpose-built student accommodation (PBSA) WHY IS PBSA ATTRACTIVE TO
INVESTORS?
sector, which was once the preserve of a small cohort
Despite the fact that the sector focusses
of specialist providers and colleges themselves, is on a single demand group, the risk/
now moving mainstream” return ratio tends to be similar to the
general residential property market,
although yields for the most part tend to
be higher, which appeals to investors.
One of the key attractions of the PBSA
sector is the high levels of occupancy
that can be attained if facilities are
WHAT IS PBSA?
appropriately managed (particularly
Another alternative investment sector where alternative uses can be maximised
that has gained popularity in recent outside of the traditional academic
years is student accommodation with year – e.g. occupation by tourists during
several specialist funders and investors summer months).
focussing on opportunities to invest in
Investors are particularly attracted
student residences, both on and off
to the sector by virtue of the fact
campus. The purpose-built student
that student housing has remained
accommodation (PBSA) sector, which
remarkably resilient throughout market
was once the preserve of a small
downturns as it is not subject to the
cohort of specialist providers and
same cyclical variances experienced by
colleges themselves, is now moving
other mainstream investment options.
mainstream. Third level colleges are
Demand for education, and in turn,
increasingly demanding high-quality
student accommodation, tends to
accommodation near their campuses
remain relatively stable regardless of the
to complement their educational offer
economic backdrop and in some cases
to existing and future students. This
the demand for education increases
is becoming increasingly pertinent in
at times of weak economic activity
terms of attracting international students
as students focus on improving their
to particular universities; an issue that
chances of securing employment.
will become even more evident in the
aftermath of Brexit as colleges around
Europe attempt to attract higher volumes
of international students who are key
users of PBSA.
Purpose-built student accommodation
offer highly designed environments
giving students access to ensuite
bedrooms, communal lounges and
kitchens.
ALTERNATIVE INVESTMENT SECTORS 10Montrose Student Residence, Dublin 4 | Hines Ireland Due to a severe scarcity of rental
accommodation in cities such as
Dublin, promoters of PBSA schemes
are therefore able to achieve higher
occupancy rates and command high
rents in their schemes. Contemporary
PBSA offers students a high quality of
living with rents generally inclusive of
bills (electricity, internet, etc.), varying
options on tenancy lengths, enhanced
internet connectivity and a comfortable,
secure environment. Units are for the
most part provided furnished.
Leases are generally set for the length
of the academic year (approximately 37
PBSA offers the potential for reliable, – 41 weeks). This gives the operator the
secure, income-generation, particularly option of leasing the accommodation
where schemes are of a high quality to summer students and non-students
and well-located. However, PBSA is outside of the normal academic year.
more specialist and more management- However, several of the larger student
“Student housing has intensive than other real estate sectors accommodation providers are now
offering full, calendar year leases to
remained remarkably and those considering investing are
students (52 weeks). In many cases,
encouraged to engage with specialists
resilient throughout who have experience in developing and parental guarantees can be obtained.
Leases can in other cases be to an
market downturns operating PBSA in other jurisdictions.
In general, providers who control all educational institution directly which
as it is not subject elements including developing, letting subsequently sublets the units to students
to the same cyclical and managing schemes achieve of the institution. Some institutions that
stronger yields than those in schemes lack their own student accommodation
variances experienced that are built and then managed by ‘block book’ or reserve private PBSA for
by other mainstream separate parties. their students only.
investment options” There is a correlation between the rental The private PBSA sector in Ireland is
payments students are willing to pay still in its infancy with the vast majority
for PBSA and the general availability of students living in private rented
of alternative rental accommodation in accommodation or on campus in halls
a location. This is pertinent in Ireland of residence provided directly by various
where students have been largely third level institutions. Both of these
accommodated in the private rented forms of accommodation are severely
sector and are forced to compete undersupplied in Dublin at present
with the general population for rental which has spurred the activity by private
accommodation, resulting in very high developers and operators.
rental values for accommodation.
11 ALTERNATIVE INVESTMENT SECTORSPURPOSE-BUILT STUDENT ACCOMMODATION
The Binary Hub Student Accommodation DEMAND FOR PBSA indicative levels of supply are outlined in
Scheme, Dublin 8 | Hines Ireland the table below and illustrate that Dublin
Much of the interest in the provision of has the lowest relative proportion of its
PBSA in Dublin has been fuelled by a enrolments accommodated in PBSA.
Higher Education Authority (HEA) report
from a few years ago that identified Each educational centre has its own
demand for an additional 25,800 dynamics with regard to how enrolments
student housing units in the Irish market convert to demand based on factors
over the next number of years. The such as the origins of its students and
report identified a shortfall of between the undergraduate/postgraduate and
16,000 and 18,000 student bed spaces full-time/part-time student splits. The
in the capital. smaller educational centres show
varying levels of demand. For example,
There are approximately 180,000 research indicates that supply falls
full-time students in Department of short of demand in Dundalk but supply
Education and Skills (DES) aided matches demand in Sligo Town.
institutions, with an additional 8,000
in other non-DES institutions1. Nearly Many specialist providers have been
half of these students are based in considering developing PBSA in Ireland,
Dublin. A further 119,199 students visit with particular focus on the Dublin
Ireland each year to study English2. market considering the concentration
There are approximately 7,500 PBSA of students in the capital city and the
scarcity of accommodation that currently
prevails. Much of this appetite has
been driven by evidence of upward
INDICATIVE LEVELS OF SUPPLY pressure on rents and capital values that
is being exerted by constrained supply
Educational Centre Enrolments3 Supply Percentage in the residential market in Ireland
Accommodated generally. However, interest in the other
educational centres has increased,
Dublin 80,953 10,529 13% particularly in Cork which already has
a relatively large supply of student
Cork 25,772 5,438 21%
accommodation.
Galway 21,083 3,704 18%
Limerick 21,752 7,060 32%
1
Department of Education and Skills
Source: Future Analytics Consulting bed spaces being provided by third Statistical Report, 2015 – 2016.
level institutions in Dublin at present.
2
Marketing English in Ireland (MEI), 2017.
Note that this includes both Junior and Adult
In addition, there are approximately students. The average length of stay is 5.3
3,000 privately operated bed spaces. weeks.
Therefore, in Dublin’s case, some 13% 3
Department of Education and Skills
Statistical Report, 2015 – 2016.
of the full-time, higher-education student
population have access to PBSA. The
ALTERNATIVE INVESTMENT SECTORS 12DUBLIN STUDENT ACCOMMODATION SCHEMES
4,500
3,500
No. of Bed Spaces
2,500
1,500
500
Under Construction Planning Applied Planning Granted
Source: Future Analytics Consulting
NEW SUPPLY to deliver 726 PBSA bed spaces. In
addition, planning applications for 675
There are many planning applications bed spaces have received permission
for student housing schemes in various but are yet to commence construction,
stages of the Irish planning process while a further 1,895 bed spaces are
at present. As of June 2017 there are in the planning process awaiting a
13 student housing schemes under decision.
construction in Dublin, accounting for
nearly 4,300 bed spaces between them. Despite the number of schemes in the
In addition, there are 8 student housing planning process, it is important to
schemes with a grant of planning remember that many of these proposed
permission accounting for 1,556 bed schemes will not materialise until such
spaces between them. time as they have obtained necessary
A further 2,300 bed spaces (net) are at planning permissions and more
various stages of the planning process, importantly development funding. Some
either being reviewed by Dublin City of the schemes intended to be used as
Council or on appeal to An Bord PBSA schemes may also seek permission
Pleanála. Outside of Dublin, in the to convert to alternative uses in due
other main centres of higher education course.
– Cork, Galway and Limerick – there
are 16 schemes at varying stages of Beyond domestic demand, the
the planning and development process. increasing presence of international
Four schemes are currently under students is also enhancing the need for
construction which have the potential PBSA. The Government is aiming for
13 ALTERNATIVE INVESTMENT SECTORSPURPOSE-BUILT STUDENT ACCOMMODATION
the enrolment of 44,000 international as “strategic housing developments”. higher quality PBSA residences matching
full and part-time higher education Upon the introduction of legislation calendar year rents (52 weeks) and
students by the 2019/2020 academic later this summer, these proposals will associated costs (waste disposal,
year. However, the Irish Council for be reviewed at planning stage solely electricity, gas, etc.) in housing available
International Students has expressed by An Bord Pleanála with the intention on the general private rented market.
concerns about the high cost of rents of fast tracking them through the
saying that a collaborative approach is planning process. Facilities have also As most student accommodation
needed with Government, city planners been put in place to enable higher schemes are conditioned by planning
and higher education institutions to educational authorities to borrow authorities during the planning process
address the issue of supply and in from the Government’s Housing to only allow for occupation by students
return rental costs. Finance Agency to help finance the (except tourists during summer months
development of PBSA. in some instances) their target market
A National Student Accommodation is particularly defined. Therefore,
Strategy was planned in the CONSIDERATIONS should students not be able to afford
Government’s housing plan Rebuilding accommodation they will opt for other
Ireland and is expected to be Assessing the affordability of existing options on the private rented market.
published later in 2017. The Strategy is and forthcoming PBSA is challenging Consequently, PBSA providers will have
anticipated to support the development as student finances are determined by to reduce rents to attract students and
of high-quality, well located and numerous factors, including parents’ remain competitive or seek a change
professionally managed PBSA. In the own incomes, grants, part-time work, of use application from the planning
meantime, in an effort to increase the loans, etc. Therefore, it is not possible authority. The latter would be a difficult
delivery of PBSA, which will in turn to determine a student’s own ability – or exercise given the specific development
alleviate some pressure in the private more importantly, their willingness – to management and design standards of
rented sector, the Government has pay a given rent. Recently, PBSA rents PBSA and the need for the provider to
identified student accommodation have been guided by trends in the clearly demonstrate that demand no
wider rental market; with academic
schemes of 200 bed spaces or more longer exists.
year rents (c. 37 - 41 weeks) in some
The Binary Hub Student Accommodation Scheme, Dublin 8 | Hines Ireland
ALTERNATIVE INVESTMENT SECTORS 14HEALTHCARE 15 ALTERNATIVE INVESTMENT SECTORS
HEALTHCARE
“19% increase in the number of over 65’s in Ireland other more mature markets such as the
US and the UK, the healthcare sector
in the intercensal period between 2011 and 2016” tends to be particularly attractive to
more sophisticated long-term capital
and investors who have experience
in this specialist sector in other
Driven by a dramatic change in the jurisdictions.
demographic profile in Ireland, a
hospital system that is under huge NURSING HOMES
pressure and a general move towards
investment in alternative sectors, In the Irish market, there has been
there has been increased demand in a particular interest from investors
investment in the healthcare sector in developing primary care facilities
in Ireland over recent years. For the and nursing homes, both in terms
most part, this includes interest in the of acquiring existing facilities and
provision of healthcare facilities and developing new accommodation. In
nursing homes considering the severe the nursing home sector, investors are
shortage of such facilities in the Irish largely focussed on the Fair Deal rate
market. This trend is only going to (the amount the Irish State pays per
escalate over the coming years as week for the provision of care) which
the Irish population continues to age. ranges from just under €800 per week
Indeed, there was a 19% increase in the in some locations to more than €1300
number of over 65’s in Ireland in the per week in other locations such as
intercensal period between 2011 and Dublin. Investors will therefore be more
2016. As is the case with all specialist attracted to investing in nursing homes
sectors, investment in healthcare offers that command a higher Fair Deal
the attraction of higher yields than more rate and therefore offer better income
traditional real estate sectors and as a generation potential.
result there has been a notable increase
The current owner/operator profile in
in investors and developers who are
Ireland is made up of private and public
focussing specifically on this sector over
homes as follows:
recent years. As has been witnessed in
OWNER/OPERATOR PROFILE OF NURSING HOMES IN IRELAND
Ireland 2017 No of Beds No of Homes Beds Per Home
Private beds 22,415 433 52
Public beds 7,180 129 56
TOTAL 29,595 562 54
Source: Nursing Homes Ireland (NHI)
ALTERNATIVE INVESTMENT SECTORS 16Top
15
Nursing Home operators in Ireland
control less than one quarter of all
private beds
Ownership of the private stock is control only 24.9% of all private beds.
dominated by a large number of small The remaining 75.1% is made up of
operators rather than big groups. individual homes operated by single
The Top 15 operators between them entities/owners.
TOP FIFTEEN NURSING HOME OPERATORS IN IRELAND
Position Nursing Home Group No. of Beds No. of Nursing Homes Average Number of Beds
1 Mowlam Healthcare 1,319 24 55
2 Carechoice 503 6 84
3 TLC Group 454 4 114
4 First Care 433 5 87
5 Silverstream 333 7 48
6 Trinity Care 295 5 59
7 Brindley Healthcare 293 6 49
8 Newbrook Group 283 5 57
8 Sonas 269 5 54
9 Arbour Group 253 5 51
10 Harvey Healthcare 220 5 44
11 Orwell Healthcare 215 2 108
12 Highfield Healthcare 209 2 105
13 Beechfield Nursing Home Group 200 3 67
14 Talbot Group 171 2 86
15 Knowles/O’Dowd 149 2 75
TOTAL 5,599 88 64
% of private bed stock 24.9%
Source: CBRE Research
17 ALTERNATIVE INVESTMENT SECTORSHEALTHCARE
Over the next few years, the ownership and a less competitive market than DEMAND SIDE REQUIREMENTS
profile is expected to change as many in locations such as the UK, there
existing operators of nursing homes are still significant barriers to market One of the most notable features of
seek to sell in a buoyant market entry. Getting familiar with market Ireland’s changing demographics
where demand exceeds supply, or to differences such as Fair Deal rates, is the pace at which the population
grow into more economic grouping/ HIQA requirements, regulations and is ageing, particularly the rate of
portfolios as in the table above. In potential acquisition targets still takes growth in the older age cohorts. Age
the last 12 months alone, a range of considerable time. We still expect dependency is defined as people
more specialist portfolio owners and to see strong increases in demand outside of the typical working age
investors have emerged. Indeed, the from a range of stakeholders in this categories i.e. (0-14, 65 years+).
second largest portfolio scheduled sector over the coming years and to Data released from the Census 2016
above, with 503 beds, changed hands see healthcare, on a broad platform indicates that Ireland’s population of
in April 2017 for €60 million — the becoming a mainstream investment older people (defined here as those
biggest sale of a portfolio ever in sector in its own right. being 65+) is now 637,567. This is an
Ireland. increase of 36% over the past decade.
Older people now account for 13% of
The challenge for those seeking the national population (up from 11%
to expand however is that very few “With most international in 2006).
Irish nursing homes change hands
or are available to acquire, which is
investors attracted to
perhaps not surprising considering the Ireland by the prospect
fundamentals of the sector. Although
of higher yields, more
their preference might be to acquire
existing facilities that already have attractive margins and a
13%
Fair Deal agreements in place and
are fully staffed, the route to market
less competitive market of the Irish population now classified
as dependent – up 36% in the last
for many will therefore be through the than in locations such decade and expected to increase to
16% by 2026
acquisition of sites and development as the UK, there are still
of new facilities. However, blockages
to economic development still persist, significant barriers to
with high land prices and exceptionally market entry” Equally, in terms of the population
high build costs driven by HIQA aged over 85 in 2016, the male
(Health Information and Quality population has increased by 24.8% to
Authority) requirements making most 23,062 while the female population
schemes outside Dublin (where Fair increased by 11.4% to 44,493. This
Deal rates are the lowest) unviable. places the 85+ age category at 10.5%
of the total population aged over 65.
Although there has been significant Approaching this sector from an
interest in the Irish market from analytical perspective, developing
a range of international market a profile of Ireland’s population,
specialists over the last few years, nursing home location and capacity
fundamental issues are still limiting data we begin to build a picture
the much needed supply of new bed of the present and future demand
stock. With most international investors requirements alongside the market
attracted to Ireland by the prospect of activity and capacity with respect to
higher yields, more attractive margins supply.
ALTERNATIVE INVESTMENT SECTORS 18POPULATION PROJECTIONS IRELAND 2006 - 2036(f)
2006 2016 2026 2036
(Projected) (Projected)4
National Population 4,239,848 4,757,976 5,308,900 5,988,100
Population Age 65+ 467,926 637,567 860,600 1,146,200
Increase (10 years) - +36% +35% +33%
Source: Central Statistics Office
The CSO’s Population and Labour Force In Ireland, there is a need to closely
Projections 2016 – 2046 estimate the monitor the adequacy of supply
likely changes to population and this versus the demands of an expanding
trend over the next two decades. It is older population. In this regard, an
projected that the population within assessment of all planning activity (under
the 65+ age cohorts will increase by construction, planning granted, planning
223,033 (or 35%) to 860,600 persons applied) alongside existing nursing
over the next 10 years. This will see the home capacity has been carried out
age dependency rate rise again from to interpret potential shortfalls in care
13% to 16% of the total population. home provision in Ireland.
There are just under 30,000 (approx.
SUPPLY SIDE CONSIDERATIONS
29,595) beds in Ireland’s 562 nursing
A policy and literature review carried homes. 25% of these are in Dublin with
out by the ESRI on European healthcare 37% located within the Greater Dublin
planning standards specifies that, Area (GDA). Using the ESRI average
on average, 4.5% of the population long-term care figure as the benchmark
aged 65+ have a requirement for and contrasting it against population
long-term residential care5. This figure (existing and future) and existing
was presented based on the actual capacity we see that Ireland is broadly in
percentage of the over 65 population line with the European average, at 4.8%
in residential care in other European nationally.
countries. Equally, they conclude
that the demand for residential care
increases significantly in the older age
cohorts, with research demonstrating
that approximately 17% of those aged 4
Under the CSO’s M1F1 scenario
between 85-89 and 28.9% of those Projecting The Impact of Demographic
5
Change On The Demand For And Delivery
aged 90+ require long-term residential Of Health Care In Ireland, October 2009.
care.
19 ALTERNATIVE INVESTMENT SECTORSHEALTHCARE
However, to keep pace with population of the end of 2016. The nature of these
growth, particularly in older age cohorts applications is to either propose new
over the next 10 years there will be a nursing homes, modify/extension of an
requirement to build approx. 9,000 existing, or change of use from another
new long-term care beds to satisfy this development type to a nursing home.
minimum shortfall and maintain a 4.5%
population-to-beds ratio. Nationally, 259 additional bed spaces
from 16 separate applications have
received a grant of permission. There
are 27 applications (779 beds)
9,000 currently awaiting a decision or have
been requested to provide for further
information by the local authorities. This
Requirement to build approx. 9,000
new long term care beds to satisfy highlights the requirement for 8,221
minimum shortfall and maintain a additional beds still required by 2026 to
4.5% population-to-beds ratio
maintain the minimum 4.5% figure and
is only 8.6% of the 9,000 figure.
NEW SUPPLY
Over the next 10 years, CSO forecasts
A national review of planning Ireland’s population aged 65+ to
applications lodged in 2016 is increase by 223,033 people or 35%.
illustrative in terms of the nature of Given the aforementioned supply and
works being proposed to develop consistently high occupancy rates, it can
new or modernise and extend existing be concluded that demand for long-term
facilities around the State. According to care beds in nursing home facilities out
research carried out by Walsh et al6, 46 strips the current supply in the system.
applications relating to nursing home
developments that feature additional As a result, investor interest in this
beds were lodged for consideration as specialist sector will only escalate further.
STATUS OF NURSING HOME APPLICATIONS
Decision No. of Beds No. of Applications
Further Information Requested 161 1
Granted (Local Authority) 259 16
Undecided / Ongoing 618 26
Refused (Local Authority) 60 1
Source: Walsh et al.
6
http://www.phr.ie/
review/2017/01/15/2016-in-review/
ALTERNATIVE INVESTMENT SECTORS 20SUMMARY & CONCLUSION 21 ALTERNATIVE INVESTMENT SECTORS
SUMMARY & CONCLUSION
Investors are increasingly focussed on Meanwhile, the delivery of new
opportunities outside of traditional nursing home and healthcare facilities
sectors and we are seeing increased throughout Ireland is critical considering
demand for investment in ‘alternative’ the extent to which the Irish population
asset classes. This is a trend that is being is ageing.
experienced globally and is not unique
to Ireland specifically. However, it is important to point out
that these sectors are different and quite
In the Irish market, we have seen specialist and those intent on moving up
particular demand for investment in the risk curve to explore opportunities
sectors that are experiencing severe in these sectors need to proceed with
supply demand imbalances including caution and against a backdrop of
Build to Rent, Student Housing and informed advice.
Healthcare in particular. The increased
appetite for investment in these new CBRE and Future Analytics Consulting
sectors is perhaps not surprising are committed to building and sharing
considering demographic projections our expertise in these new sectors and
for Ireland’s population in the medium providing our clients with Best in Class
to long term. ‘Build to Rent’ in particular advice on these specialist sectors as they
will have an important role to play evolve over the coming years.
in helping to address severe supply
shortages of rental accommodation in
Dublin and other Irish cities. The delivery
of much-needed purpose-built student
accommodation in Ireland’s cities will
alleviate pressures in other areas of the
housing market and is to be welcomed.
ALTERNATIVE INVESTMENT SECTORS 22CONTACTS
For more information about the information contained in this report, please contact:
Marie Hunt Tim MacMahon Dr. William Hynes
Executive Director Director Managing Director
CBRE Research Development & Residential Future Analytics Consulting Ltd
+353 (0) 1 618 5543 Capital Markets +353 (0)1 639 4836
marie.hunt@cbre.com +353 (0) 1 618 5782 william.hynes@futureanalytics.ie
tim.macmahon@cbre.com
Wesley Rothwell Stephen Purcell
Executive Director Cormac Megannety Director
Development Director Future Analytics Consulting Ltd
+353 (0) 1 618 5548 Healthcare +353 (0)1 639 4836
wesley.rothwell@cbre.com +353 (0) 1 618 5589 stephen.purcell@futureanalytics.ie
cormac.megannety@cbre.com
www.cbre.ie www.futureanalytics.ie
To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at
www.cbre.com/researchgateway.
ABOUT CBRE.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real
estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and
serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of
integrated services, including facilities, transaction and project management; property management; investment management; appraisal
and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at
www.cbre.com.
CBRE U.C., (CBRE Ireland) registered in Ireland, no. 316570. PSRA Licence No. 001528 is the country’s largest commercial real estate
services company with offices in Dublin and Cork. Currently employing over 135 employees, we work with occupiers, investors and
developers of office, industrial and logistic, retail, hotel and healthcare property, providing strategic advice and execution for property sales
and leasing; tenant representation, corporate services; property and project management; appraisal and valuation; development services;
investment management and debt advisory; business rates and compulsory purchase and research and consulting. Please visit our website
at www.cbre.ie.
ABOUT FUTURE ANALYTICS CONSULTING
Future Analytics Consulting Ltd. (FAC) is a town planning, economics and applied research company based in Dublin. FAC provides
rigorous, evidence-based solutions that give confidence to developers and planning authorities, with the skills set and experience to deliver
economically and environmentally sustainable solutions that drive positive change across numerous classes of development, including,
residential, healthcare, retail, commercial and transportation, as well as major infrastructure projects. FAC’s expertise and experience
ensures a high-level and quality output of many diverse and wide-ranging strategic projects, from Regional Planning, Land Use and
Transportation Studies, Housing Strategies, Retail Strategies, Healthcare Studies, Independent Research, Feasibility Studies and
Assessments, as well as analyses dealing with economic, social, regulatory and cultural issues and data gathering. Please visit our
website at www.futureanalytics.ieFollow CBRE Follow Future Analytics Consultancy DISCLAIMER CBRE U.C., (CBRE Ireland, PSRA Licence No. 001528) and Future Analytics Consulting Ltd (FAC) confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE U.C. and FAC clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE U.C., and FAC.
You can also read
