Burlington House helps spur development market
Published 03/07/2014 | 02:30
ACTIVITY in the development land market has moved up a gear with the purchase of a Dublin 4 office building for redevelopment. Heretofore the market had been dominated, with only a few exceptions, by acquisitions of small sites with residential potential.
As recently as a few months ago office rents had been considered to be approaching levels that might justify development on cleared brownfield sites in docklands or refurbishment of existing offices in Dublin's Central Business District.
Now however a few developers appear to be willing to pay strong prices for the opportunity to, not alone develop new offices, but even take on demolition costs as well.
It is for this reason that the sale of Burlington House is now being seen as a hugely important deal for the development market. The property, which was recently sold for some €40.5m has set a new bar for the market. The 1980's office building in Dublin 4, takes the office development land market to a higher gear. Paddy McKillen and Colony Capital are reported to have come together with Johnny Ronan and Dev Sec for this redevelopment.
Surprisingly, they beat US private equity giant Blackstone which was seen as the hot favourite for to take on the building which backs onto the former Burlington Hotel which the US firm already own.
The sale price is well above the €25m quoted by CBRE and partly reflects how receiver Paul McCann of Grant Thornton, secured planning permission to double the amount of the floor space on the site from its existing 7,021sq m.
While the building is in the heart of "prime" office space in Dublin 4, and so would have been attractive regardless, the additional planning permission undoubtedly made it much easier for potential buyers to assess the property and take a favourable view on future earnings that could be possible from the property. The price also suggests that there are under bidders who are interested in re-development opportunities in Dublin's Central Business District.
The volume of development land deals in the last six months is higher than in the entire 12 months of 2013 according to the latest CBRE bi monthly report. It says that 54 development sites totalling more than €203m having traded in the first six months of 2014 compared with 39 transactions totalling almost €111m in the same period last year.
"Much of what is being traded continues to comprise relatively small lot sizes which are being released on an ad-hoc basis," says CBRE director Marie Hunt.
Indeed the only other office development site to sell during the recent quarter was a one acre site at Windmill Lane in Dublin 2 which Hibernia REIT acquired for €7.5m. Hibernia's acquisition can be considered part of a strategy to enhance other adjoining office and commercial properties that it also acquired.
Earlier in the year two other office deals also had a development angle. The former Irish Nationwide offices came with a large site at Grand Parade, Dublin 6 which sold for more than €13m and Davy's bought an office building on Mespil Road, Dublin 4 for more than €16m. But these were considered to be medium or longer term plays as the office buildings are leased.
One site that has caught the eye is NAMA's plans to sell the leasehold on a large area of the north docklands. The property is being sold by a tender process, and no agent has been retained. NAMA is retaining the freehold of the site.
"Now that prime office rents have gone above €34 per sq ft, it has begun to make sense again for developers to build new offices," says Lisney's Cathal Daughton.
Residential site sales also show signs of price increases for well-located sites and CBRE attributes these rises to "bidders factoring in expected rental and capital appreciation into their bid prices."
Ms Hunt also points out that the outturn for 2014 as a whole could be significantly boosted if some larger tracts of land such as some in Cherrywood in south Dublin and other plots come to the market.
Cherrywood's SDZ status will allow developers to avail of the fast track planning permission without delays or costs from dealing with objectors. Those sections of Cherrywood which are earmarked for lower density housing are likely to be the most sought after in the near term. Other areas within the SDZ with commercial and high density development targets may not be as attractive for developers with short-term requirements.
Possible purchasers of Cherrywood lands may compare values with the €12.5m which developer Michael O'Flynn paid for a 12.8 acre on the Bray Road in Cabinteely. Backed by funding from Goodbody stockbrokers, He plans to build 150 new homes on it.
At that price of around €976,000 per acre it works out at the equivalent of €83,300 per house site.
Clearly, having planning permission on a site is becoming even more important than it has been historically. With the lack of suitable office space in Dublin at the moment, and with prices increasing rapidly, developers are looking to build quickly, and get their new buildings sold or rented out while the market is still buoyant.
Given the lead in time a new build can take, even without having to go through the planning process, there is a huge incentive for sellers to have some form of planning permission secured for a site before they bring it to market.
Nearby to Cherrywood, smaller plots with planning permission are going for much higher prices per house site. For instance earlier in quarter two a 0.23 acre plot at The Croft, Park na Silla, Loughlinstown, near the N11 was auctioned by Savills for €720,000. With planning permission for four semi-detached houses, this works out at €180,000 per house site.
Demand and prices have also improved for residential sites in north Kildare commuter towns. For instance a 3.4 acre site at Hazelhatch Road, Celbridge, was auctioned by Knight Frank for €2.8m or more than €823,500 per acre. A major plus was its planning permission for 25 houses and 30 apartments.
Also in north Kildare a five acre site at Dunboyne Road, Maynooth, sold for €2.62m or €524,000 per acre in May. Its planning permission for a high density development of 83 apartments, 11 maisonettes and a crèche had expired. With strong demand for houses in the university town, it is expected that the site may accommodate 55 houses which would work out at about €47,636 per house site.
Joint agents Savills and REA Coonan had been guiding €900,000 prior to auction.
Knight Frank with JP & M Doyle sold a 13.55 acre site in Blessington, Co. Wicklow, for €2.1m. It includes 2.55 acres which are zoned town centre and have planning permission for a nursing home.
The remaining 11 acres are zoned residential and have permission for 49 houses and six apartments.