Sunday 24 February 2019

Growth of PRS to define Dublin Docklands residential market

At the heart of the action: Grand Canal Quay, as seen from the 17-storey Millennium Tower apartment building at nearby Charlotte Quay
At the heart of the action: Grand Canal Quay, as seen from the 17-storey Millennium Tower apartment building at nearby Charlotte Quay
Donal Buckley

Donal Buckley

The combination of increased jobs and more affordable prices is expected to boost demand for housing, from investors, owner occupiers and tenants in Dublin's north docklands in 2019, according to local estate agent Owen Reilly. He is forecasting that residential prices across the whole of the docklands will rise by between 3pc and 4pc in 2019.

"At present prices in the north docklands are about 20pc below those in the south docklands. I expect buyers will be encouraged by Salesforce's recent announcement of its plans to locate at Spencer Place and will be attracted by the more affordable prices on the north side," he said.

Most investors prefer the south docklands and this is reflected in his firm's research which shows that while investors accounted for 53pc of deals across all the docklands, in the south docklands they accounted for as much as 80pc of purchases.

About 75pc of docklands purchasers were cash buyers and 73pc were Irish including ex-pats, some of whom were investors, including those who would consider returning here at a future date.

"I expect more buyers to avail of debt to help fund their purchases this year. I also expect more investors to buy in the north docklands where they can get a two-bedroom apartment in some of the older blocks for more affordable prices. They can buy a two-bedroom apartment in one of the older blocks for €350,000. Then after they refurbish it, the rents will not be subject to the 4pc rental cap and they can achieve market rents," he added.

"With supply of rental accommodation not coming close to matching demand, affordability is increasingly a factor with tenants. Investors achieved average rents of €2,392 per month across all of the docklands, which is an increase of 8.7pc."

These figures are based on letting agreements concluded by Reilly's agency in the third quarter of 2018.

Three-bedroom rents increased by 12pc to €4,166 in 2018 while two-bed units rose by only 2.6pc to €2,471. One-bedroom units increased by 11pc to €1,850, while on a floor area basis the average rent for all types was €419 per sq m (€39.37 per sq ft).

When it came to buying, one-bedroom units achieved the strongest growth rising 10pc to an average of €364,667 in 2018 while the increase for two-bedroom units was 3pc resulting in an average price of €501,327. Three bedroom apartment prices rose by 6.5pc to an average of €735,000.

Consequently with average price inflation rising by only 4.1pc and average rents increasing by 8.7pc, the average yields for new investors increased to 5.8pc gross.

While south docklands yields rose three basis points to 5.5pc, somewhat higher gross yields of between 5.8pc and 6.2pc were seen in the north docklands depending on the type and block.

In the first quarter of 2018 the Dublin Docklands residential market recorded strong enquiries and selling prices leading to higher asking prices. However, by the early summer market dynamics shifted with increased supply, especially apartments for which supply increased by 41pc compared with 2017.

But the increased asking prices led to affordability issues for owner occupiers due to mortgage cap restrictions while some investors became more hesitant if they didn't see value, despite the very strong rental market.

These factors combined to generate some buyer resistance and longer selling times - up from 5.2 weeks to 7.4 weeks. The average asking price was €531,595 and the average selling price was only 2.3pc higher compared with 6.7pc in 2017.

In floor area terms, the average selling price was €647 per sq ft compared with €622 in 2017, an increase of 4.1pc. In the south docklands, Grand Canal Dock is still the most valuable neighbourhood with an average selling price of €694 per sq ft. In the luxury market, two penthouse sales broke the €1,000 per sq ft level.

At 25 Gallery Quay, Block 1, a three-bedroom duplex penthouse sold for €1.55m or €350,000 more than its asking price.

The majority of sellers were landlords exiting the market, many of them accidental landlords with families who had outgrown their apartments.

With almost half of the sold properties being bought by owner occupiers, there are now less rental properties available in the docklands putting further pressure on the rental sector.

But while more than seven in every 10 purchasers was Irish, less than two in every 10 tenants were Irish. And with many of the investors being ex-pat Irish, this suggests that the market is attracting new absentee landlords who are letting to people of overseas origin, as these accounted for 81pc of tenants.

Nevertheless Owen Reilly points out that Irish tenants more than doubled their share of docklands renting activity last year - up from 8pc to 19pc.

"In recent months we are increasingly meeting higher earning executives relocating here, some of it Brexit-related," Reilly says.

The average salary of his docklands tenants is now €117,095 which is more than double the level of three years ago.

The growth of the private rental sector will have a significant impact on the market. For instance Cairn Homes' sale of 120 apartments at 6 Hanover Quay at an average price of €800,000 per apartment changed the strategy for many developers.

Only last week the Irish Independent revealed that developer Sean Mulryan's Ballymore and its partners, Oxley, are in exclusive talks with US property firm Greystar to sell 268, one, two and three-bedroom apartments at Dublin Landings on North Wall Quay in one lot for €175.5m or an average of €653,850 per luxury unit.

"It is very likely that all remaining apartment developments, planned or under construction, will now be sold in one block to an institutional investor. Though this will help alleviate pressures in the rental sector, one of the unintended consequences is that owner-occupiers don't have the option of buying in these developments," Reilly says.

He believes a more normal, sustainable market is beginning to emerge however with the Central Bank's mortgage lending rules combining with improved supply to deliver price stability. He also points to the strong fundamentals with office space under construction or nearing completion for another 30,000 office workers.

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