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Residential Prices in Dublin Will Grow by Maximum of 5% While New ‘Near Zero Energy Buildings’ Regulations Will Impact Construction Costs

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Residential Prices in Dublin Will Grow by Maximum of 5% While New ‘Near Zero Energy Buildings’ Regulations Will Impact Construction Costs

Residential Prices in Dublin Will Grow by Maximum of 5% While New ‘Near Zero Energy Buildings’ Regulations Will Impact Construction Costs
January 08
10:54 2020

Uncertainty stemming from global events will be the key aspect of the Irish property investment market in 2020, according to new figures released by Lisney, Ireland’s largest independently-owned property advisory company. Despite this, Lisney expects investment market turnover to be strong in 2020, with several high-profile assets due to be put up for sale that will contribute to overall turnover levels. This activity will be mainly driven by the office and PRS sectors, which will account for at least 70% of market turnover.

This activity will follow a very strong 2019, where investment turnover is estimated at €4.7 billion, the largest amount of investment ever recorded in a year, and 18% more than 2018. This €4.7 billion does not include the company sale of Green REIT, which was an additional €1.34 billion. Lot sizes increased further due to the sale of some large assets, averaging about €23 million per transaction, with demand for the bigger opportunities coming mainly from overseas. Dublin accounted for 82% of investment turnover, followed by Cork at 5%.

In other sectors, Lisney expects residential prices to be relatively steady in 2020, with any growth in selected areas to be no more than 5%. New Near Zero Energy Buildings (NZEB) regulations will increase construction costs on residential properties by between 1% and 4%, while a trend in increased enquiries from UK based buyers for the upper end of the market is expected to continue into 2020.

On the office front, occupiers from the tech industry continue to dominate the market, taking half of all accommodation in 2019 and this trend is set to continue into 2020. Elsewhere, nearly 6,000 student accommodation bed spaces are currently under construction across Dublin, Cork, Galway and Kildare while Cork’s top headline office rent, at €345 per square metre, is more than half the top Dublin rate.

A breakdown of the key sectors is outlined below, with full in-depth details contained in the Lisney Outlook 2020 report, which can be accessed here – http://lisneyoutlook.ie/

NEAR ZERO ENERGY BUILDINGS (NZEB)

The new Near Zero Energy Buildings (NZEB) regulations mean that all new building completions and those having undergone major renovations must meet a certain standard by 31st December 2020. Government figures suggest that the construction cost of commercial buildings will increase by between 2% and 8%. With regard to residential properties, the projected increased construction costs will be between 1% and 4%.

RESIDENTIAL

The number of second-hand properties for sale on the Dublin market grew during Spring 2019, with over 30% more properties available for sale in March compared with the previous 12 months. This, combined with the quantity of new homes on the market, helped to ease supply tensions in the first half of 2019. Maintaining second-hand supply at around 5,000 units across Dublin at any given time also assisted in keeping prices relatively steady. This improvement in activity is expected to continue into 2020 as vendors price expectations and the amount potential purchasers are willing to pay are more balanced. Spring 2020 could see a burst of activity and Lisney expects prices to be relatively steady, with any growth in selected areas to be no more than 5%.

At the upper end of the market, there was a noticeable increase in enquiries from UK-based buyers in the final two months of 2019, and this is a trend that could develop into a greater number of sales in the more expensive parts of Dublin in 2020.

OFFICES

2020 will be another good year for the Dublin office market with take-up likely to be at a similar level to 2019, estimated at 250,000 square metres. The biggest risk to the office market in the short-term is an external macro-economic event. Over-valuations of second-tier tech companies could also pose a risk to demand, given the Dublin market is now so dependent on such occupiers.

As has been the case for several years, occupiers from the tech industry continue to dominate the market, taking half of all accommodation in 2019 and they are likely to be strong players again in 2020.

STUDENT ACCOMODATION

There will be continued expansion of stock levels in the Purpose-Built Student Accommodation sector in 2020, with a greater reliance on summer income to justify new development. 1,700 bed spaces completed construction in 2019, all of which were in Dublin. The outlook for 2020 and beyond remains positive with over 5,800 beds under construction across Dublin, Cork, Galway and Kildare. There are also a further 10,180 beds spaces that are either with planning or in the planning system that have not yet commenced construction.

SUSTAINABILITY

There is now a global movement focusing on the moral obligations of organisations and their environmental responsibilities. The built environment is not immune to this and must adapt. Heretofore, sustainable changes in the industry have generally been forced on occupiers and developers through building regulations. However, the pace of this movement is rapid and for the first-time, people power may force changes ahead of the legislative process. Investors focusing on environment, social and governance (ESG) criteria are more prevalent, as are building performance measures such as Leadership in Energy and Environmental Design (LEED) and the WELL building standard in the office sector.

Duncan Lyster, Lisney Managing Director.

LICENSED PREMISES

The outlook for the Dublin licenses premises market in 2020 is positive, following a strong demand for pubs in 2019. A notable trend was the fact that higher value, well-located prime Dublin pubs were sold. The combined achieved prices of the 14 premises totalled €51.3 million, compared to €23.4 million in 2018. While Lisney don’t expect to see as many prime assets to come to the market in 2020, they do anticipate a similar number of properties will trade hands in the sub-€2 million price bracket.

CORK

In Cork, the estimated market turnover was about €240 million in 2019 and represented about 5% of the Irish market, making it the second busiest location for property investment. The demand for investment properties in Cork will continue in 2020 as the yields on offer are more enticing than Dublin returns. The PRS sector is also likely to be busy.

Cork’s top headline office rent, at €345 per square metre, is more than half the top Dublin rate, which will mean that Cork’s office market will remain very competitive in 2020 to attract both FDI and domestic occupiers. Activity levels in 2020 will be assisted by the new high-profile schemes that are under construction and other schemes will commence as the year progresses.

Aoife Brennan, Lisney Research Director.

Cork’s residential property market remains active with new homes continuing to play an important role in the market. As with the Dublin market, there may be some price growth in selective areas in 2020.

Duncan Lyster, Lisney Managing Director, says: “In preparing our Outlook 2020, we share our predictions and experiences and find themes likely to play out within the individual sectors and segments of the markets. There is a diversity between the sectors in terms of maturity, energy and activity that points to real opportunities and certain threats for the coming year. At a macro level, the political stage is set for much change domestically, in the UK and the US. Each of these will have an influence on how property will perform in 2020 and beyond.”

Aoife Brennan, Lisney Research Director, says: “I believe the property market will remain active in 2020. The biggest threat to the various parts of the market is an external global event. The investment sector reached its highest turnover levels on record in 2019 and while we do not expect this to happen again this year, we do expect a very strong level of sales. Occupier demand in the office market will remain busy and construction activity will continue, while in the industrial sector, further construction of larger buildings will address stock constraints. Development in the PRS and student accommodation sectors will assist with supply issues in the residential rental market.”


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