Tuesday 23 January 2018

Market sees fourfold increase in multi-family transactions

The sale of 67 of the 294 apartments at the Windmill development in Dublin 15 is expected to close before the end of this year
The sale of 67 of the 294 apartments at the Windmill development in Dublin 15 is expected to close before the end of this year

Donal Buckley

Transaction activity in the multi-family housing sector increased by over 75pc in value and grew more than fourfold in volume, between 2013 and 2016, according to a new report from Sherry FitzGerald.

In 2013 there were 16 multi-family transactions nationwide, with a total value of just less than €250m. By 2016 the volume of transactions increased to 74 and their value to more than €424m. These figures are based on data from the Property Price Register.

Dublin accounted for 97pc of the value of all nationwide transactions in 2013, with very few deals taking place outside of the capital that year. However, in the past few years there has been an increase in transaction activity in the regional centres and commuter belt counties in particular, with Dublin's share of this market falling to 74pc in 2016 when the Greater Dublin Area accounted for more than 82pc of deals.

At the same time the value of Dublin deals grew from €235m in 2013 to €315m in 2016, an increase of 34pc.

However, the opening six months of 2017 witnessed a slowdown in transaction activity due to depleted stock levels and the absence of new product coming to the market.

Nevertheless, estate agents Lisney forecasts that deals amounting to more than €300m may be completed before the end of this year. Among those are German fund Patrizia's advance purchase of two blocks at Cosgraves' Honeypark development in Dun Laoghaire comprising 319 apartments. The Hooke and MacDonald- brokered deal is believed to have secured €132m.

In addition Dublin Artisan Development Fund, backed by the Irish Strategic Investment Fund (ISIF), has bought 131 apartments at New Bancroft Hall, Tallaght, from Park Developments for more than €30m.

Also expected to close before the year ends is a portfolio of 67 of the 294 units in the Windmill development near Porterstown in Dublin 15. The units, of which 60 are two-beds, are 100pc occupied producing an annual gross rent of €990,000.

Although the units are peppered around the development, Ross Harris, new homes director at sales agents Sherry FitzGerald, says the 67 units with their €13.5m guide price attracted good interest from investors.

The coming weeks are also expected to see Savills go to second-round offers for the forward funding of 1,800 apartments on six Dublin sites owned by Pat Crean's Marlet. It is expected that these could fetch over €425m, which, if completed, would significantly boost this year's multi-family sales.

Multi-family deals are considered to be lots with 10 units or greater and with a transaction value of €1m-plus.

The market may also receive a boost from the new developments that are in the pipeline. At the end of 2016, planning permission was granted for a total of 3,141 apartment units across four Dublin local authorities, with Dublin city accounting for 1,501 units, or 48pc of the total. Fingal accounted for 26pc, while Dun Laoghaire-Rathdown and South Dublin totalled 24pc and 2pc, respectively.

The opening quarter of 2017 saw planning permissions granted for 896 apartments nationally, an increase of over 60pc on an annual basis. In Dublin, 717 apartments were granted permission during the quarter, or 80pc of the national total.

Most institutional investors prefer complexes of 100 units or more where they can achieve economies of scale and so not all of the new apartments will be bought by institutional investors.

Mr Harris also points out that the final delivery of product remains low.

"The overall costs of delivering the required product is currently not viable in the majority of projects, with cost-benefit analyses highlighting little more than break-even, and in some cases negative, returns. Financing constraints, low levels of construction activity and planning restrictions are among several elements curbing the delivery of much-needed new stock in the sector at present," he adds.

Supply could improve if the design standards for build-to-rent developments were changed or development levies reduced. For instance, if less parking was required or the fire safety authorities accepted sprinkler systems which could obviate the need for internal corridors in each apartment. These would allow for more efficient use of space and allow build-to-rent developers to provide more units.

While there is increased international investor interest in multi-unit investments, not all apartment blocks are of interest to such investors. Location, proximity to transport and accessibility to business districts are important to ensure sustainable demand, while build quality can curtail maintenance costs. On the other hand, competition and supply is also affected by the exodus of individual buy-to-let landlords from the residential rental market.

Sherry FitzGerald's report says nationally the share of investors purchasing properties over the five years between 2012 and 2016 stood at 15pc per annum, whereas the figure for investors selling properties averaged 33pc per annum.

"This is a worrying trend that continues to adversely affect the supply of available rental properties, and further compounds upward inflation pressure that exists in the rental market, notably in Dublin," the report adds.

The gap appears to have narrowed this year, however, with investors accounting for 21pc of all purchases in the opening half of 2017, although exiting private investors remains at a high 33pc of total vendors.

The gap between the number of investors purchasing and selling may widen further owing to the 4pc cap on rent increases in rent-pressure zones. Already rental growth was relatively flat during the opening quarter of 2017, with rents increasing by less than 0.1pc nationally, according to the Residential Tenancies Board. In Dublin, rents fell 1.4pc during the quarter, although over the 12 months to the end of March, Dublin rents had increased by 7.3pc. A key gauge of future multi-family supply may well be the numbers of applications for fast-track planning permissions for larger developments.

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