Development land prices tipped for growth in 2016
The strongest sectors of the development land market this year are expected to include prime office and retail development sites in Dublin as well as some residential areas south of Cork City. In contrast Dublin residential land prices are expected to see slower growth or simply stabilise.
Mark Reynolds of Savills expects land values to increase by between 10 and 15pc for both the south Cork residential sites and the Dublin retail sites.
"Prime Dublin office sites are flying. Last year they increased by between 15 and 20pc in value and could rise between 5 and 15pc this year," he added.
JLL's Des Lennon and CBRE's Wesley Rothwell concur about the prospects of increased land values in 2016 but declined to put any figures on the rate of acceleration.
Reynolds estimates that the strongest land markets in 2015 were in commuter counties of Meath, Westmeath, Kildare, Wicklow as well as in Cork where interest and values increased by about 20pc.
Donal Kellegher of DTZ Sherry FitzGerald estimates that 2015 saw a total of €711m generated from the sales of 156 development sites in the Greater Dublin Area and the other regional centres of Cork, Galway and Limerick.
Greater Dublin Area (GDA) including Dublin and the commuter counties of Meath, Kildare and Wicklow, dominated activity with €673 million transacted, accounting for 95pc of the total value. Dublin alone accounted for 82pc of the total activity.
CBRE says the national figure was even higher with about €770m - up from €680m in 2014. That figure does not include loan sales such as the €503m reported for the Project Clear portfolio.
The first quarter of 2016 also looks set to be strong as DTZ says that at the end of 2015 almost 50 GDA sites were sale agreed with a total value of about €160 million.
One of those which closed this week was the 20.3 acre Knockrabo site at Mount Anville Road, Dublin 14, which was bought by an Irish residential developer.
It is believed to have sold for significantly more than the €23m. quoted by DTZ. Part of the site has planning permission for 88 houses and apartments and the whole site is expected to accommodate at least 170 houses and apartments.
Next month will see a prime 1.85 acre Spencer Dock site come to the market for which EY receivers have received planning permission for up to 425,000 sq ft of offices, 165 apartments, a 169 bedroom hotel and 1,270 sq m gross of retail and restaurant space. Controlled by Nama and CIE, the site will be marketed by joint agents JLL and BNP Paribas Real Estate.
Both Lennon and Kellegher expect an increased number of sites to come to the market this year with the latter forecasting that some of those who purchased close to the bottom of the market may sell while Lennon expects receivers to sell lots which were held pending a market improvement.
Wesley Rothwell expects 2016 to see a similar volume and value of land sold to that of 2015.
"Premium prices will be achieved for strategic sites… buoyed to some extents by continued increases in capital values, particularly in the commercial property markets," he adds.
"Outside of Cork, Galway and the commuter counties, he doesn't expect "a dramatic improvement in provincial land values however, with many of these sites still proving unviable."
"The appetite for ready to go residential sites will continue to be particularly strong considering the supply shortages that continue to prevail, although it remains to be seen what impact the central bank mortgage affordability rules and Government supply side measures…will have on pricing."
While Des Lennon expects a "continued steep acceleration of commercial land values throughout 2016 and an increase in residential prices from 2015 levels" he also sounds a note of caution.
"It may be harder to find value in all sectors and the risk reward balance will be less clear. The gathering clouds over the global scene suggests some caution will be required."
"There would be greater risk if supply of office and residential accommodation was coming close to demand but at present demand far exceeds supply.
The development game has always been a rollercoaster ride with fast approaching surprises impacting upon the risk reward balance but with continuing strong demand from occupiers in a buoyant economy tilting the balance in most sectors firmly to "reward" in 2016 our advice to the development community in the next 12 months is: "Just get on with it".
CBRE's Marie Hunt also forecasts that more firms may follow the route adopted by Cairn Homes, which lead the largest deal of the year, Project Clear. Cairn and Lone Star are reported to have paid €503m for this Ulster Bank loan portfolio which included the Adamstown land bank in west Dublin and 80 acres in Portmarnock.
Cairn also paid €18m for 6 Hanover Quay, a 1.06 acre site with frontage to Grand Canal Dock with permission for 100 apartments. Savills handled the sale known as Project HQ.
One of the last deals to close before the end of the year saw Paddy McKillen's Oakmount Group purchase a half acre site at Charlemont Place, Dublin 2, for over €15m. in a deal brokered by Knight Frank. The ready to go site has permission for 5,348 sq m of offices.
A Knight Frank survey also found that 78pc of developers plan to increase their land bank over the next year with 48pc targeting acquisitions with planning compared to 30pc without planning. Director James Meagher says this reflects capital funders preference for sites with planning as the cost of funding for schemes without planning can be prohibitively high.
"The availability of finance is now greater than any period in the past five years. Senior debt providers are now starting to compete against providers of mezzanine and equity finance, while the two pillar banks have re-emerged as lenders for projects with permission," he added.