Ireland Residential Investment Market Overview - Knight Frank
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Occupier Trends Investment Trends Market Outlook
Ireland Residential
knightfrank.com/research
Investment Market
Overview
Research, Overview of 2021 & Outlook 2022
Special Focus - European Residential Investment
Market Trends & Insights2 3
IRELAND RESIDENTIAL
INVESTMENT MARKET
42% OVERVIEW 2021
of investor spend in 2021 was on residential
assets (€2.3 billion).
Multi-family deals accounted for 83% of that.
PAGE 4
Ireland as a small, open economy, member of the European Union and eurozone, has
experienced remarkable growth in core sectors throughout the Covid-19 pandemic. As the
economy rapidly re-opens the pace of activity is set to accelerate across all sectors.
ECONOMY companies to Ireland have reaped sectors (1. Industry (including pharma),
82% 34,000 *
At a most fundamental level the
population has been on an upward
considerable rewards and created high
value adding sectors to the economy.
Dublin is now a recognised global centre
2. Finance, Insurance & Real Estate, 3.
ICT and 4. Professional, Scientific &
Technical). Overall tax revenue collected
trajectory since the 1990’s and reached
of European investors surveyed by housing units are required per for TMT/ICT and all the Top global by the government was the highest on
over 5 million people in 2021, which is
Knight Frank expect to be active in annum to meet the needs of the pharmaceutical companies have a record in 2021 and there was an increase
multi-family/single family assets by economy and population. There is an the first time in over one hundred years
presence in Ireland, to include Pfizer and of 17% in income tax receipts, reflecting
2026, compared to 77% in 2021. acute mis-match between housing that there have been more than 5 million
Janssen Pharmaceuticals. the high value adding nature of many of
supply and demand. people living in Ireland. Positive net
PAGE 8 these new jobs.
migration, where on balance more people uu
5 KEY
* estimated
came to Ireland than left between April The housing market has struggled to keep
PAGE 3 2020 and April 2021, along with a natural
There are 94,700 up with the evolving pace and nature of
more jobs now across
TA K E A W AY S
increase in the population of 22,800 demand. Increased population growth
four key sectors
over the same period, accounts for the in a fast-paced economy, where buyer
0.7% increase in the population over that uu preferences as well as demand moves fast
twelve-month period. Looking over a five- has left a large mis-match with the supply
The shock to the domestic economy of
year period, the population has increased that has been coming on stream.
the Covid-19 pandemic has been buffered
from 4.7m to 5.1m people, of which 1.4m
by the fact that these two sectors along Housing supply across all categories of
(27%) live in Dublin.
with financial services, insurance and product has failed to meet the estimated
Decades of government investment in professional services have grown in range of between 25,000-35,000 per
Research & Development, in education terms of output and job creation. There annum that has been required over the
and in incentives to attract global are 94,700 more jobs now across four key last decade.
85% 20% 35,000
Housing Supply and Demand
Supply Demand
of deals were completed off market, of spend was on income producing 30,000
impacting market transparency. stock which is highly sought after but
severely lacking in the market. 25,000
PAGE 5
page 5 20,000
15,000
10,000
5,000
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022F
E= estimate F = forecast. Source: Knight Frank Research/CSO/Central Bank of Ireland4 5
Social housing deals comprised 9%, while
INVESTMENT
uu
The residential capital markets sector
student accommodation accounted for Residential Investment Sub-Sector Analysis 2021
has evolved quickly over the last few MARKET 2021 The largest proportion 6%. Changes to purchasing single family
years in particular as the supply gap of residential investments which were implemented in
became more acute. The Irish investment market finished investment deals was 2021, saw this sub sector fall from 11% of Student accommodation 6%
strongly in 2021 with a total of €5.525bn completed in the first
Challenges such as inflation and residential deals in 2020 to 2% in 2021.
of investment spend. This compares to half of 2021 Single family
supply chain pressures are somewhat
inevitable given global developments
€3.02bn in 2020 and is second only to the
DEAL TYPE - FORWARD FUND 2%
record level of €7.28bn invested in Irish uu
over the last two years and will put VS STANDING STOCK
commercial property in 2019. investment transactions each over €1mn,
pressure on most sectors to keep up
compared to twenty-seven in 2020 and fifty The composition of deal structures in
with the demands faced in a fast- For the second consecutive year,
in 2019. 2021 was very similar to that of 2020 with
moving economy such as Ireland’s. residential investment was the dominant
forward commit being the dominant
asset class to transact in the market The largest proportion of residential
Overall, the scene is set for this to be deal type. Forward commit deals
accounting for €2.3bn or 42% of CRE investment deals were completed in the
an interesting, exciting and rewarding accounted for 71% of residential
spend, followed by offices at 29% and first half of 2021 with transaction volumes
time to be part of the development of investment spend in 2021 followed by
industrial at 18%. The growth of the tapering off, particularly in Q4 2021. The Multifamily
the residential capital markets sector existing operational assets at 20% of
in Ireland.
residential investment sector in Ireland,
which has been evident since 2017 and
strength of transactions in the first half
of the year is in part due to a carry over
residential investment volumes. 83%
accelerated dramatically in a short period of deals from 2020 which took longer to 2021 saw the first forward funding deal
uu
of time, is in line with the trend witnessed transact due to the upheaval caused by the complete for a residential investment
The Irish economy is across Europe. onset of the Covid-19 pandemic. in the Irish market. The deal completed
estimated to have grown by Union and Ballymore occurred in
The fundamentals of the Irish economic While 2021 saw the market return to
by over 15% in 2021 and the second quarter of 2021 and was the
growth story, coupled with population somewhat more normal conditions, it is
by over 5% if measured only forward funding deal of the year.
increases and a supply and demand taking longer to complete a transaction,
by modified domestic We expect 2022 will see further forward
imbalance has underpinned investor once deal agreed.
demand. The rapid funding transactions.
interest in this segment of the market.
opening up is expected to SUB-SECTOR ANALYSIS
give additional momentum Throughout 2021, there were seven deals OFF MARKET DEALS VS ON
each in excess of €100mn and a further In terms of the various sub-sectors, MARKET DEALS
9% Social housing
in 2022. Source: Knight Frank Research
eight deals between €50mn and €90mn. multifamily deals accounted for 83% of
2021 saw a large proportion of residential
uu There were forty-seven residential the investment spend throughout 2021.
investment deals occur off market,
which accounted for 85% of transaction Residential Investment Residential Investment
On Market vs. Off Market by Deal Structure
volumes. The €450mn Ardstone
PRS* 42% transaction in Q1 2021 has no doubt
2021 2021
TMT 42%
Investment Spend by Sector ResidentialOffice
Investment 29% 2013 - 2021
2021 influenced the increased percentage of PROF SERVICES 31% FORWARD
31%
€ Residential Spend Industrial
Residential Investment as % of Overall18%
Spend off market transactions however, even on
On Market
FINANCE 8%
COMMIT 71%
PRS* 42%
OFFICE 29% €3,000,000,000 Retail 5% 45% a deal-by-deal basis, there were twenty- 15% OTHER 8%
INDUSTRIAL 18% Mixed-Use 3% 40%
seven off market deals and eighteen on
Other 2% market transactions for the year.
Residential Investment as % of Overall Spend
€2,500,000,000
Hotel 1% 35%
The increased level of off market deals
is sure to impact market transparency as
€ Residential Spend
€2,000,000,000 30%
details of gross to net income and yields
25%
€1,500,000,000 becomes harder to verify. Off Market
85%
20%
€1,000,000,000 15%
10%
85%
HOTEL 1%
€500,000,000
OTHER 2% FORWARD
5%
MEDICAL 3% FUND 9%
MIXED-USE 3%
€0 0% CO-WORKING 4% EXISTING 20%
RETAIL 5%
2013 2014 2015 2016 2017 2018 2019 2020 2021
STATE 4%
Source: Knight Frank Research
Source: Knight Frank Research Source: Knight Frank Research
*Includes 2% on student accommodation
Source: Knight Frank Research
of residential deals were off market6 7
POLICY AND HICP Inflation Rate
Top 5 Investors of 2021, €m
uu LEGISLATION
Ireland EU Area ECB Target
2021 saw a large proportion of residential Since the first residential investment
investment deals occur off market, which transactions in Ireland in 2012, the 7.00
accounted for 85% of transaction volumes.
market has evolved into sub-sectors 6.00
uu to include multifamily, student
5.00
1.
Annual % Change
accommodation, social/long term leasing
A R D STO N E 4.00
€751.5M and more recently single family housing.
3.00
Top 5 Vendors/Developers of 2021, €m In a bid to discourage investment in the
2.00
single family housing market, the Irish
1.00
Government adjusted the residential
stamp duty rate from 1% on the first €1 0.00
1. 2. 3. 4. 5.
A R D STO N E CA I R N H O M E S BA L LY M O R E DW Y E R N O L A N PA R K million and 2% on excess over €1 million -1.00
D E V E LO P M E N T S D E V E LO P M E N T S Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21
to 10% where 10 or more residential
2. houses or duplexes are purchased at a
€200M *Source: European Central Bank
UNION time, or in a year.
The increased rate was effective from investment market. Continued alterations This new bill is designed to bring the
3.
€177M the 20th May 2021 and does not apply to legislation created a level of uncertainty planning decision process back under the
€288M
PATRIZIA
€2 to local authorities, approved housing in the market and going forward we will remit of the local authority and allow for
00
M 4. bodies, investors acquiring units to lease see sub-markets which had started to gain improved public participation via the An
€177M to a local authority or approved housing traction with investors taper off. Board Pleanála appeals process.
GREYSTAR
bodies or when buying apartments.
M
€1
50
Throughout 2021, many SHD planning
81
5.
PLANNING & PIPELINE
€4
M
Another recent change to the residential applications were held up by Judicial
€127M
rental sector is a move away from the rent Review. It has been announced that an
€127M
The current planning system is due for an
cap of 4% on annual rent in Rent Pressure assessment is being undertaken of the
overhaul in the coming eighteen months.
B L AC K R O C K / S W 3 Zones and towards an indexed linked Judicial Review process with the aim of
Source: Knight Frank Research The Strategic Housing Development (SHD)
rent review model using the Harmonised streamlining the review process in order
Source: Knight Frank Research process which was first introduced in 2016
Index of Consumer Prices (HICP). As the to speed up decision making. The overall
has come to an end and new planning
aim of the ECB is maintain HICP at an goal is to streamline the planning system
legislation was introduced in December
annual rate of 2% per annum over the to allow for the efficient delivery of much
TOP 10 DEALS OF 2021 2021 to replace the SHD process. The Large
medium term, this measure was sought needed new homes.
Scale Residential (LRD) Development Bill
PROPERTY SECTOR DEAL STRUCTURE VENDOR PURCHASER
PRICE ACHIEVED to keep rent inflation in line with overall
(€M) was enacted on 14th December 2021. For During 2021, the supply of housing,
inflation. This change came into effect on
a short period of time both the LRD and both for owner occupied and rental
ARDSTONE PORTFOLIO MULTIFAMILY FORWARD COMMIT ARDSTONE ARDSTONE €450,000,000 16th July 2021.
SHD processes will operate while the final accommodation remained topical as house
8TH LOCK, ROYAL CANAL PARK, ASHTOWN, DUBLIN 15 MULTIFAMILY FORWARD FUND BALLYMORE UNION €200,000,000
Subsequently, in July 2021, Ireland’s SHD applications have worked their way prices and rental prices increased. The
HICP reached 2.2%, exceeding the ECB through the system. After that point, the recently published ‘Housing for All’ policy
MAYNE COLLECTION MULTIFAMILY FORWARD COMMIT DWYER NOLAN ARDSTONE €181,000,000 target of 2%, increased further to 5.4% in LRD process will become the sole planning projects new housing supply to be on
November and to 5.7% in December 2021. consent system. average 33,000 units per annum over the
GRIFFITH WOOD, GRIFFITH AVENUE, DUBLIN 11 MULTIFAMILY FORWARD COMMIT CAIRN GREYSTAR €177,000,000
next 10 years to meet demand.
In early November 2021, the Government A Large Scale Residential Development
BLACKROCK/
EAST VILLAGE, CLAY FARM, DUBLIN 18 MULTIFAMILY FORWARD COMMIT PARK DEVELOPMENTS
SW3
€127,000,000 announced an additional alteration to is similar to a SHD in definition whereby However, the closure of construction sites
the rent review mechanism which will both systems cover: for prolonged periods in 2020 and 2021
THOMAS STREET, DUBLIN 8 AND PARKGATE, HATTINGTON STREET
STUDENT EXISTING PATRIZIA €120,000,000 cap rent increases at 2% per annum as part of the COVID-19 public health
DUBLIN 7 STUDENT ACCOMMODATION CAPITAL
in Rent Pressure Zones (RPZs) when a housing development of 100 restrictions has impeded the delivery of
PORTFOLIO OF UNITS AT ADAMSTOWN, CO DUBLIN MULTIFAMILY FORWARD COMMIT QUINTAIN
ORANGE CAPITAL
€110,000,000
1
PARTNERS general inflation is higher than 2%. or more units; new housing units.
This amendment took effective on 11th
WINDMILL, CLONSILLA, DUBLIN 15 MULTIFAMILY FORWARD COMMIT KIMPTON VALE URBEO €73,000,000 student accommodation The Central Bank of Ireland forecast that
December 2021. 2
comprising 200 beds or more; supply would be 21,700 units in 2021 and
ABERDEEN
ROSELAWN, FOXROCK, DUBLIN 18 MULTIFAMILY FORWARD COMMIT RICHMOND HOMES €70,700,000
STANDARD While government intervention in the 27,000 and 31,000 in 2022 and 2023. Actual
a combination of the two
real estate market is not new, 2021 saw a 3 total new dwelling completions in Ireland
ASHBROOK, CLONTARF, DUBLIN 3 MULTIFAMILY EXISTING MKN IRES REIT €66,000,000 where the threshold is met
number of changes throughout the year throughout 2021 were 20,443 of which 30%,
for either element.
which have impacted the residential 6,201 units, have been in Dublin.
Source: Knight Frank Research8 9
SPECIAL FOCUS
EUROPEAN RESIDENTIAL DEBT MARKET debt providers making a push to enter Another key theme in the market is
the historically underserved market. inflationary concerns impacting swap
2021 in Review
Responding to the undersupplied rates across Europe. Having enjoyed
INVESTMENT MARKET Recapping on 2021, the year proved to
be one of the busiest in the European
housing market, residential remains the
focus for many lenders, as demonstrated
a number of years in negative figures,
Euro swap rates are now in positive
debt market since the global financial with for example, Goldman Sachs opting territory with the EURIBOR 5 year
crisis as restrictions began to lift in Q2 to partner with Fairfield Real Estate swap rate rising c. 50 bps in the past
and sentiment improved. Across Europe Finance with a view to lending up to 12 months to 0.08%*. Furthermore,
EUROPEAN RESIDENTIAL INVESTMENT Sectors in which investors were institutional capital once again began to €900 million to help deliver 7,500 new EURIBOR forward curves are projected
TRENDING UPWARDS active in 2021 versus where they flow into a range of asset classes, homes in Ireland, across all tenures, over to steadily increase in coming years.
anticipate being active in by 2026* with Build to Rent Residential and the next three years. As a result, whilst lender margins
The residential investment market market, where the majority of
Logistics remaining the focus of many remain competitive, the total cost of
in Europe, very much like in Ireland, investment is forward commit
DEBT MARKET
2021 2026
investors due to their resilience during borrowing is projected increase over
has grown from being an alternative deals and there is a scarcity of core
the pandemic. OUTLOOK 2022 the course of 2022.
asset class with relatively low levels operational assets.
SENIORS
of investment ten years ago to one of HOUSING The debt market quickly followed the lift Looking ahead to 2022, our outlook ESG will continue to be at the priority
the dominant asset classes, second
Of the investors surveyed, student
50% in sentiment as lenders began to adopt for the European debt market remains for both investors and lenders in
housing and multifamily were the sub
only to offices as of Q3 2021. A Knight
sectors most investors were currently 32% a more positive outlook for real estate. strong. Off the back of a very successful 2022. As lenders continue to offer an
Frank survey* of residential investors This, coupled with significant capital to 2021, we are continuing to see a variety increased range of ESG incentives,
active with a smaller proportion active
across Europe indicates that the level of deploy following a difficult year in 2020, of new alternative lenders entering particularly reduced margins, investors
in co-living and senior housing.
investment in this space will increase led to increased competition between the market alongside existing lenders will continue to focus on ways to
further in 2022. It is anticipated that further investment CO-LIVING lenders resulting in pricing and leverage successfully raising new funds for their ensure ESG targets are met. Europe has
will be in multifamily and student returning to pre-pandemic levels. debt platforms. We expect this increased previously led the way in green finance
Germany, the UK and Spain are markets
highlighted by European investors as
over the next five years and further 68% The Irish debt market also gained
liquidity in the market to sharpen debt with nearly half of global sustainable
allocations provided for senior and pricing in the medium term as post- lending coming out of the continent, a
having the best prospects for investment
over the coming five years. Ireland
co-living investments. Given Ireland’s 55% momentum with a number of alternative
pandemic recovery continues. trend we expect to continue in 2022.
planning laws in relation to co-living,
featured strongly in the responses
Ireland will not partake in the growth in
featuring 6th overall.
this sub-sector.
UK & Euro Area Swap Rates
Income producing assets are the most MULTI-
When asked about the biggest risk FAMILY/
sought after deal type followed by SINGLE
factors for residential assets, investors UK 5 YearSwap Rates UK 10 Year Swap Rates Euro Area 5 Year Swap Rates
forward funding and forward commit. FAMILY
The largest barrier to investment was
listed regulation, rising operational 82% 2.00
costs, rent control and affordability at
listed as the availability of operational
the top.
stock. This is mirrored in the Irish
77% 1.50
Most Targetted Investment Propositions* 1.00
Percent
0.50
INCOME PRODUCING 86% STUDENT
86%
0.00
FORWARD FUNDING 82%
-0.50
82%
FORWARD COMMIT 73%
-1.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
Source: Knight Frank Research
*results from Knight Frank Survey of European Investors 2022 which represents the view of 22 institutional investors, currently Source: Knight Frank Research
active in the RCM sector and who account for €64bn in residential assets under management in the Eur *results from Knight Frank Survey of European Investors 2022 Source: Knight Frank Research, Macrobond (figures as at 07/01/22)10 11
1.
Heading into 2022, we will see a record level
of capital flow to invest in the Irish residential
investment market with Dublin now firmly
positioned as a Tier One European city.
5. 2.
Continued competitive Throughout 2022
investor bidding is we expect to see a
expected to result in yield
compression in 2022.
OUTLOOK considerable increase in
forward funding deals being
2022 offered to the market.
4. 3.
One to watch for the forthcoming We anticipate Purpose Built
year is the potential impact the Student Accommodation (PBSA)
new planning legislation will to return to the market with
have on the delivery of stock to strong appetite for this product
the market. be it single assets, portfolio
deals and corporate deals.Please get in touch with us
Research Capital Advisory
Joan Henry, Chief Economist & Lisa Attenborough, Partner
Occupier Trends Investment Trends Market Outlook
Head of Research lisa.attenborough@knightfrank.com
Dublin PRS Dublin Office joan.henry@ie.knightfrank.com
knightfrank.com/research
knightfrank.ie/research
Occupier Study Market Overview Craig Wilson, Partner
Research 2021 Research, Q3 2021
Robert O’Connor, Senior Research Analyst craig.wilson@knightfrank.com
Special Focus: Dublin 2 leads the way as the office market rebounds
robert.oconnor@ie.knightfrank.com
IN ASSOCIATION WITH
European Residential Capital Markets
Residential Capital Markets
Stuart Osborn
Dublin PRS Occupier Dublin Office Market Tim MacMahon, Director stuart.osborn@knightfrank.com
Study 2021 Overview Q3 2021
tim.macmahon@ie.knightfrank.com
Valuations
Emma Courtney, Associate Director
Occupier Trends Investment Trends Market Outlook
emma.courtney@ie.knightfrank.com Peter Rowan, Director
Ireland
knightfrank.com/research
Investment peter.rowan@ie.knightfrank.com
Market Overview
Research, Q3 2021
Capital Markets
Laura O’Connell, Director
Special Focus – The Dublin Industrial Property Market
Adrian Trueick, Director laura.oconnell@ie.knightfrank.com
New Homes adrian.trueick@ie.knightfrank.com
Construction Survey
2021 Glenn Kealy, Director
Peter Flanagan, Director glenn.kealy@ie.knightfrank.com
Dublin Investment Market
Dublin Investments Q3 2021_FINAL.indd 1 09/11/2021 15:24
New Homes Construction
Overview Q3 2021 Survey 2021 peter.flanagan@ie.knightfrank.com
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