Saturday 25 November 2017

Apartments are the future, but build costs are an issue

While apartments are still not financially viable for developers, they are much in demand. Liadan Hynes reports

Bracken View at Bracken Park, Castleknock, where 23 apartments went on sale last year
Bracken View at Bracken Park, Castleknock, where 23 apartments went on sale last year
Liadan Hynes

Liadan Hynes

'Really we don't have a choice. If we are going to stop Dublin heading all the way to Drogheda, and all the way to Athlone, we have to put a ring around it," says John O'Mahony, vice president of the Royal Institute of Architects of Ireland (RIAI), and managing director of architecture firm O'Mahony Pike.

"What we have to do is identify higher density cores within our suburban areas and develop them. You put apartments into them, which allow older people, empty-nesters, to move out, which releases stock to families to move into. This idea that you can build semi-detached houses forever doesn't work."

If we are to curtail urban sprawl and the rise of the four-hour-plus daily commute, apartment living seems to be the answer. And buyer demand is strong from both first-time buyers and those trading down.

Ken MacDonald of Hooke & MacDonald says they are finding "a continuing strong demand for apartments, particularly from owner-occupiers", among both first-time buyers keen to live close to the city centre, and those choosing to trade down from larger homes.

"There's a very strong market for apartments, especially in the city, and especially near strong transport links," says Stephen Day, divisional director of residential sales of Lisney. While investors are still interested in apartments, owner-occupiers will tend to be willing to pay a premium, he says. It's hard to quantify, but he estimates the figure as roughly 5pc more.

As with houses, shortage of supply is a huge problem. "It's cheaper to buy an existing apartment at the moment than it is to build a similar property, so it's not economically viable to build apartments. Except in, say, Ballsbridge or one or two other areas," says MacDonald.

As such, the majority of new apartments are at the higher end of the market, and are aimed at trade-down buyers who can afford high-quality homes in the more desirable parts of the city centre, such as Dublin 4, or the more picturesque suburbs like Clontarf, Greystones or Castleknock.

Hooke & MacDonald launched 23 apartments in Bracken Park, Castleknock, a Cosgrave development, in 2015, with all of the two-bed and three-bed units selling.

Sherry FitzGerald has had two launches: Seascape at Clontarf in March of last year, which has only five units left on the market, and 55 Percy Place, on the canal, which launched in January and has only one duplex apartment remaining.

Savills launched 31-33 Merrion Road early last year, and all 38 units have sold. It launched a second development of luxury apartments, Embassy Court, also in Ballsbridge, late last year and eight of the 10 first-phase units are sale-agreed. In both Seascape and Merrion Road, an overwhelming majority of the purchasers have been from the trading-down sector.

"The cost is higher than the sales value that you can actually get for apartments," says developer Aodan Bourke, director of Regency, the residential property development company. "A two-bed apartment in Dublin, unless you're in a wealthy 2, 4, or 6 area, is averaging around the €200,000 mark. You can't build an apartment for that; when you build in all the costs; you end up at a cost that is going to be above 200 grand."

Add on the costs of a basement space, and you are possibly looking at building costs of around €250,000-€260,000, he estimates.

"The whole issue of affordability, it is an issue, there is absolutely no doubt about it," says O'Mahony, who is currently working on Capital Dock, a development that will include over 200 apartments, and Project Trinity on the site of the former Jurys and Berkeley Court hotels in Ballsbridge, phase one of which will include 200 apartments.

"From talking to some of my developer clients, they have identified a price gap between what a couple can actually raise in terms of a mortgage and what can be built by a developer to elicit a profit. I don't in any way believe that there's land hoarding going on," he continues. "Any developer who sees a market and ignores it on the basis that he's going to hoard land and come back in two or three years' time, that's rubbish."

Building apartments is not just more costly than building houses, it yields a potentially slower return.

"The main issue with suburban apartments is the underground car park," says Savills' David Browne. "It's a significant cost. The other issue stopping apartment building is, with housing, the builder can go in, you might put a couple of million into building a pair of show houses, and doing up the entrance, for example, but you quickly get your money out of it because you sell them down as you go, whereas with apartments you have to build the whole thing before you get one penny back. So it's much more difficult to fund."

The updated Planning Guidelines on Design Standards for New Apartments issued last December by the Department of the Environment were criticised for introducing smaller overall size guidelines. According to O'Mahony, however, "they have made a considerable improvement on the efficiency of apartment development" by reducing the number of dual-aspect units required, and allowing more units per corridor.

"We ran a test on it to see what the impact would be in a typical urban block and what we discovered is that you effectively halve the number of [lift] cores that you need to service an urban block without, in our view, reducing the quality of the units."

The new regulations "will make it more economical to build apartments, because you'll be able to get more to the core", says developer Michael Cosgrave, who launches another block of apartments in Bracken Park late next month.

The quality of apartments coming on the market is undoubtedly improving, and both increased storage space and additional on- site amenities are a feature - the Boland's Quay development, which will be brought to the market towards the end of 2018 by DNG, will have 41 apartment units, and include a gym, restaurants and cafes on site.

However, our adoption of apartment living as a lifestyle still has a long way to go.

"I think people are very much still using apartments as a stepping stone," says Stephen Day of Lisney.

"Unfortunately, in this country we have a poor view of apartments, whether it be that they may not have been built properly in the past, and also management companies have been very poorly [run]. That has exacerbated the public's perception of apartments. Also, prior to the regulations in 2007, a lot of apartments were very small, and we got that whole shoe-box scenario. All of those things together have led to people not being particularly enamoured with apartments," says Aodan Bourke.

O'Mahony identifies an important change in the nature of apartment development in Dublin. "Before the bust, apartments were almost solely built for sale. So developers would build apartment developments, sell them and move on. So their responsibilities disappeared.

"What we're getting now is that the thrust of development of apartments in the city areas is now actually being taken over by the multi-family development. That is, the development that's built to rent," he explains, citing investment firms Kennedy Wilson and Hines as examples. "Because of the affordability issue, the development of apartments, particularly in the city centre, is falling predominantly into that sector, which is really being dominated by the investors who have bought into that market.

"Now this is actually a whole new market to Ireland," O'Mahony points out. "But there are huge benefits to it in so far as it's being developed by developers who have a long-term experience in managing and renting apartments."

Sunday Independent

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