Cork development on the up as business eyes real capital value
Cork City is currently seeing increased development of offices, hotels and student accommodation. However the city has had little, if any, new apartment developments despite increased employment, and rising residential rents in contrast to the upsurge in build-to-rent developments in Dublin.
Lisney reports four new office schemes currently under construction in Cork with a combined floor area of 27,000 sq m (290,625 sq ft) and most of this space has already been taken, reflecting the strong occupier demand.
O'Callaghan Properties is developing Navigation Square on Albert Quay, the largest development under construction. Its Block A will extend to 13,800 sq m (148,542 sq ft) and has been let to Clearstream. A further 15,600 sq m (167,917 sq ft) at Block B, has begun and is to be completed in the latter part of 2019.
The city's most active developer, John Cleary Developments (JCD), is due to complete 4,600 sq m (49,514 sq ft) of offices at 85 South Mall in the first quarter of next year and has already let it to business consultants KPMG, with US-based cyber security company Forcepoint occupying the ground and first floors.
Earlier this month work got underway on site clearance for JCD's Penrose Dock development in the city centre which will offer a total gross floor area of 39,992 sq m (430,470 sq ft), including basement and 23,000 sq m (247,570 sq ft) of offices across two buildings. Work is expected to take in the region of 18 months to complete.
Also due for completion early next year is the 6,700 sq m (72,118 sq ft) facility at 3 Eastgate Drive in Little Island to the east of the city which O'Flynn Construction is developing and has pre let to US pharma firm, Eli Lilly.
A further 12 schemes have planning permission for a combined floor area of 162,400 sq m (1,748,059 sq ft) of which seven are in the city centre while three are in the south suburbs and one each in the west and east suburbs.
These include Clarendon and BAM's HQ at Horgan's Quay with 28,700 sq m (308,924 sq ft) of offices; JCD's City Gate Mahon with 26,000 sq m (279,862 sq ft); Westfield Office Quarter in Ballincollig with 24,500 sq m (263,716 sq ft) and Trinity Quarter in the city centre with 22,700 sq m (244,341 sq ft).
Margaret Kelleher of Lisney says there are two further developments currently in the planning system, namely the 5,500 sq m (59,201 sq ft) Prism on Clontarf Street and 17,000 sq m (182,986 sq ft) across two buildings on the former Ma/Comm site in suburban Mahon.
Meanwhile Denis O'Donoghue of CBRE says there are as many as 1,500 hotel bedrooms in the pipeline across five projects. These include the soon to open 163-bed Maldron Hotel on South Mall. Nearby, BAM is building a 220-bedroom hotel at Sullivan's Quay.
On MacCurtain Street, Trigon Hotels Ltd, which owns the Metropole Hotel, is planning to increase capacity to 400 bedrooms including the addition of a new urban hotel called 'The M'. This will bring to four the number of hotels owned by the Alvarez family in Cork, including two at the airport.
Joint developers Clarendon and BAM have begun work on their new hotel at HQ on Horgan's Quay near the railway station. Across the river near the bus station, Dublin-based company, Tetrarch Capital, has applied for planning permission for a 165-bedroom hotel at 7-9 Parnell Place.
O'Donoghue says that the city's tourism industry will benefit from the development of the new event centre at the former Beamish & Crawford brewery site. This will also help to underpin the student accommodation developments which are underway in the city, as they will supplement the supply of summer tourist accommodation when the students are away.
The latest student project will see London-based Future Generation, undertake a 600-bed space project on a site it acquired at Carrigrohane Straight Road convenient to both UCC and the Cork Institute of Technology. Closer to the university, at The Lough, another developer Lyonshall (Bandon Road) Ltd is reported to be seeking permission to increase the size of an approved project by 98 to 418 student bed spaces.
But a lack of apartment development has raised concerns among Cork business people. In a recent interview John Mullins, chairman of the Port of Cork, told the Evening Echo local newspaper that: "The problem is we haven't built apartments for a very long time, the only things being built are student accommodation… That is not going to do anything for returning emigrants who want a home for their kids or for foreign nationals who want to work here in new jobs in places like Apple and EMC. They are all struggling to find a place to live.
"My sense is that the biggest threat to economic growth in our region is the lack of a housing supply. Think about tradespeople for example. How are you going to attract back an electrician, or fitter or plumber from Australia or Canada if there is no housing?" he added.
Despite average residential rents in the city growing by 4.9pc in the second quarter of this year to €1,123 per month, developers are not attracted by the returns from apartments.
Denis O'Donoghue points out that even with some two-bedroom 93 sq m (1,000 sq ft) apartments fetching rents of €1,800 per month, a build-to-rent developer would get an annual rent of only €17.28 per sq ft. "That is way below the €33 per sq ft which a developer can get from renting prime city centre offices," he explains.
"The Government needs to reduce the 13.5pc VAT in order to make it more attractive to develop the city centre apartments," he explains.
"City centre apartment development would not alone increase the supply of housing but also increase the vibrancy of the city centre at a time when online retail activity poses increasing challenges for shops and high streets," he adds.
On the other hand, Cushman & Wakefield is forecasting that the rate of increase in Cork's prime office rents will slow from an 11pc growth in the 12 months to September this year to 1.4pc growth next year which could help to narrow the gap between rents in both sectors.