Foreign developers invest €87m in student housing
WITH international students generating an estimated €1bn a year for Ireland's economy, international property developers are coming to the rescue of the Dublin rental accommodation market and three of them are investing more than €87m in new student accommodation projects.
The moves come at a time when large scale international investors are being attracted to the UK student housing market, a trend that may augur well for Irish investors in student accommodation as well as for NAMA.
In addition, NUI Maynooth has set next Thursday as the closing date for tenders on a new €18m student accommodation project at its Co Kildare campus, according to research by Construction Information Services.
Demand for these flats looks set to soar as the Government is hoping to attract as many as 52,000 international students to third level colleges here by 2015. That was the target set in 2010 when it said it would aim to double the then figure of 26,000 overseas students at third level colleges.
In the two subsequent years that number has increased to more than 32,000 last year and a spokesperson for Education in Ireland (EiI) is hopeful of getting close to 50,000 by 2015. A division of Enterprise Ireland, EiI is targeting prospective students in Malaysia, India, China, Saudi Arabia, the US and Brazil.
In addition to the third level students it has been estimated that as many as 100,000 overseas students a year attend English language courses here.
An estimated 60pc of overseas students come to Dublin and these may well be adding to the upward pressure on demand for rental accommodation and rents in the capital.
Total Dublin residential rental stock fell to 1,500 on November 1 – its lowest level in four years after being as high as 6,700 in 2009. Reflecting falling supply, Dublin rents have risen by an average of 7.6pc during the 12 months to November according to Daft.ie.
Other university cities are also showing rental increases: with Cork and Galway cities rising between 3pc and 4pc, while in Limerick, rents are 1.8pc higher, the first annual increase in rents since late 2007.
The biggest new student development in the pipeline is the €45m project planned for a site on the Digital Hub campus in Dublin's Liberties.
Knightsbridge Student Housing Ltd (KSHL), a student accommodation development and investment company operating in European markets, has submitted a planning application to Dublin City Council for the project on a site that includes the Grainstore Building on Thomas Street, Dublin 8. KSHL has teamed up with Irish firm Bennett Construction to submit the plans in response to Digital Hub Development Agency's invite to developers to submit proposals for the site.
They plan to provide 100 student accommodation units with 493 bed spaces in two blocks as well as 229.5sqm of space devoted to retail, restaurant and financial services for use by others at the Digital Hub.
KSHL will also develop 1,749sqm of office and associated floor space for digital media in the existing Grainstore building which is to be refurbished.
Meanwhile another overseas student accommodation specialist, Urbanest, is awaiting a Bord Pleanala decision on its plans for a €36m project on a site fronting onto Sir John Rogerson's Quay, Creighton Street and Windmill Lane in Dublin's city centre.
With a gross floor area of 11,692sqm it will comprise 313 student bedrooms as well as a 223sqm ground floor retail unit, leisure and recreational space.
Construction work is due to start next month on the €6.7m conversion of the former Montrose Hotel near UCD to provide 190 flats, some of which will accommodate up to eight en suite study bedrooms and include shared kitchen/living/ dining areas. In this case UK firm Ziqqurat also plans to offer short-term visitor lets.
Meanwhile, NUI Maynooth, has progressed to the tender stage for its €18m accommodation project, which will provide 59 student apartments as well as a student social room and shop on its North Campus.
Knightsbridge and Urbanest are two of the top 11 developers of student accommodation in the UK. Recent research by CBRE shows that Knightsbrige has 8,090 beds in its portfolio or in its pipeline, while Urbanest currently has 1,066 beds and a further 1,400 in the pipeline.
The CBRE research also shows that international capital is now targeting this type of accommodation not only in London but also into the regions. For the two years to the end of September investment into region student accommodation has been running at £1.5bn per year.
If only a fraction of this investment were directed to the Irish market, the Government would not need to revert to tax incentives in order to entice private investors to meet expected demand.
Recently the UK market has attracted two US and an Australian firm acquiring three large portfolios of student flats. While a key attraction was the opportunity to enter the market at scale, the yields of between 6.75pc and 7pc, and therefore the prices are much lower than for some flats in Limerick.
Recent Allsop Space auctions have seen some three-bedroom student flats in on Old Cratloe Road, Limerick, sell for between €25,000 and €28,000 each. Subsequent to that the auctioneer sold 37 of them to an Irish ex-pat at around the auction prices.
On the other hand a four-bedroom student flat at 38b Shanowen Hall, Santry, Dublin 9, near DCU, sold recently for €195,000. As well as generating a rent of over €18,500 a year, it also benefited from Section 50 Tax relief whereby investors could reduce the income tax payable. That suggests a gross yield of almost 9.5pc.
On the other hand net yields of 10pc can be achieved by private investors in some of the better quality Limerick complexes according to Limerick agent Des O'Meara, of Sherry FitzGerald, who cites an example of a unit in Ashdown Village, which is currently for sale for €85,000.
However, he points out that in other complexes annual management charges can exceed rents, so he advises possible investors to do their research before buying.
Unfortunately some early investors in these units were badly hit by the market downturn.
Even though they could avoid income tax on a large portion of the rental income, these incentives did not compensate for price drops in some cases down from around €300,000 to less than €30,000.