Property Watch Q3 15 From Property Industry Ireland, the most influential property organisation in Ireland Inside this Issue: Residential Rents Continue to Rise Across the Country +9% Strong Prospects in 2015 for Commercial Real Estate Investment 3bn REITs Assemble a Substantial Portfolio in Irish Property 2.15bn AIB is backing brave and open for business AIB is engaging with the construction and property industry, through its Specialist PLU and Regional New Business Teams Special Report Why do apartments in Dublin City Council cost up to 20% more than Fingal or South Dublin County Councils?
Introduction While the range and quality of data on the Irish property market is improving, we still have some way to go One of the aims of Property Industry Ireland is to help create a sustainable recovery in the Irish property sector, underpinned by a solid evidential base. Good data helps people make better decisions, and the motivation for Property Watch is to help connect potential investors, purchasers and developers as well as policy-makers, commentators and the wider business community with the data they need to understand the Irish property market. Property Industry Ireland is delighted to partner with AIB in producing this report, which is the first in a series of quarterly Property Watch publications. The data contained in Property Watch is not produced by Property Industry Ireland; it is the work of a variety of State, semi-state and private sector organisations and collated here by DKM Economic Consultants for the first time. Our role has been to gather the latest high-level property data and we invite readers to make contact with the individual researchers and organisations directly for more detailed analysis. A note on methodology and contact details for those organisations which have provided data for this report is included at the end of the document. We hope that, on reading this report, you will be able to identify the datasets which are of importance to you. Where there are still gaps in our knowledge of the Irish property market, we hope that Property Watch may act as an indicator about where future research and data collection may produce good results. As new datasets become available, we will incorporate them into future editions. I would like to thank the researchers in all of the organisations which offered their data for inclusion in this report. Their contact details are at the end of the report. Property Industry Ireland and AIB are also grateful to DKM Economic Consultants for supporting this initiative and for their hard work in gathering and presenting this data. This is a quarterly report and the next edition will be published as early as possible in the New Year to include all the Q4 2015 property market data. If you have any feedback on this report or its contents, please get in touch. The contact details of all the partners are on the back cover of this report. Dr Peter Stafford Director, Property Industry Ireland The document is produced independently by DKM Economic Consultants. The views and opinions expressed are those of the relevant author and do not necessarily reflect the views of Property Industry Ireland and its partners. The information is not intended to be used as a basis for any particular course of action or as a substitute for financial advice. PII and its partners disclaim all liability in connection with any action that may be taken in reliance on this document and for any error, deficiency, flaw or omission contained in it. 2
Property Overview All property sectors performing strongly, with the lack of supply pushing prices and rents up further It seems that the property market is never out of the news these days, whether it is about the rising trend in house prices and residential rents, the shortage of Grade A office accommodation, the increasing demand for retail space from new entrants or the record levels of investment in Irish property assets. Moreover, the interaction between the property market and the economy is very evident from the analysis presented in Property Watch. The key challenge in the housing sector is supply which has led to the recent package of measures to stabilise rents and boost supply. All sectors are reported to be performing strongly in the non-residential market, with the economic recovery boosting demand in the office, industrial and retail sectors, while the lack of supply is pushing rents up further for quality properties in the most sought after locations. As a result of the strong pick-up in the Dublin office market, for example, tenant incentives are reported to be tightening with less opportunities for rent free periods. In the Dublin industrial market, the agents report the South-West corridor as the dominant location of choice, with sales as opposed to lettings accounting for the majority of transactions in Q3. Yields across the board have also been on a downward trend since the beginning of the year. Following a dearth of new building over the past six years, the agents note the pick-up in development activity in both the city centre and suburban markets, with an estimated 19 office schemes under construction in Dublin at the end of Q3. In Cork, the office development under construction at One Albert Quay is due to be completed in Q1 2016, while a decision is awaited on the mixed-use development proposed at the former Capitol Cinema site and adjacent buildings on the Grand Parade. Significant real estate development is likely in Limerick over the medium-term following the identification of seven strategic sites for development by the Limerick local authorities, including the Opera Centre site which is being prioritised for development. The first signs of construction for quite some time have also emerged in the Dublin industrial market with two schemes under construction at the Horizon Logistics Park beside Dublin Airport. Since provisions for REITs were included in the 2013 Finance Act, three such companies were established which between them, have raised a total of 1.8 billion. They have assembled a combined portfolio worth almost 2.2 billion, close to 100 per cent of which is located in Dublin. Combined with Kennedy Wilson Real Estate, all four companies are now active institutional investors in the residential market, with 24 per cent of their combined portfolio represented by residential property. Moreover, all have significant developments in the pipeline which will further improve the supplydemand balance. The deleveraging activity by NAMA and the banks is expected to result in a total investment in property assets which will exceed 3 billion this year. In regard to asset sales, the investor profile has been dominated by institutional investors, most notably REITs, who have been aggressively buying up commercial and residential real estate over the past two years. Although Dublin is the predominant location, investor demand is expanding into other regional cities and towns where a significant number of other commercial properties have come to the market. Many investors believe there is now greater value in these regional cities and there is likely to be greater scope for growth in these markets. This quarterly publication provides information on the Irish residential and commercial property markets based on a range of data sources, using the latest data up to the 17th November. DKM wish to sincerely acknowledge the cooperation of the property agents in providing their data for inclusion in this report. Annette Hughes, Director, DKM Economic Consultants 3
Latest News The focus of attention firmly on housing over recent months Housing, Housing and more Housing... With much focus on the housing market over the past eighteen months, the market had to wait until November, four weeks after the 2016 Budget, for the integrated package of measures to address the problems which have emerged as a result of the economic recovery. While very welcome, it is likely to be some time before we see any noticeable increase in the level of new housebuilding, with less than 2,500 units commenced across the four Dublin local authority areas and less than 6,500 units nationally in the first nine months of the year. Budget 2016 does little for the Property Sector From a property market perspective, Budget 2016 primarily focused on measures to ease the shortage of social housing. The Budget announced an increase in the current allocation for social housing of 69 million, bringing the total amount of funds available in 2016 to 414 million. In addition, it was announced that 10 million will be made available from the proceeds of the sale of Bord Gáis Éireann for an affordable housing pilot scheme, while a further 17 million has been allocated for the emergency accommodation of the homeless, resulting in an overall allocation of 70 million. Separately, NAMA has been tasked with delivering 20,000 residential units before the end of 2020, primarily focused on the Greater Dublin Area (c.90% of units) and in the starter homes market (c.75% of units). Aside from these measures, the Budget reiterated measures previously announced under the Social Housing Strategy and the Capital Investment Plan. The Social Housing Strategy set out a target of delivering 35,000 new social housing units over the period to 2020 at a cost of 3.8 billion. Delivery is envisaged in two phases; the first phase setting a target of an additional 18,000 housing units by end 2017 to be funded by 500 million in 2016 and 570 million in 2017. NAMA has also been tasked with facilitating the completion of 4,500 new residential units in the Dublin area by the end of 2016. However, while the Plan states the strategy is to deliver these units through building, acquiring or leasing, it is expected that a significant proportion of units in the short-term will be delivered through acquisition and leasing and by the reuse of vacant units, with the result that any new construction is likely to be back-end loaded in the programme. The Budget also reiterated the commitment in the Capital Plan to provide funding for 500 modular housing units for homeless families. These units are progressing with applications already in from manufacturers to provide the first 22 homes by the year-end, with the balance to be provided during 2016. Half of these units are to be located in the Dublin City Council area with the remainder split across the other three local authority areas. However, aside from these measures, the Budget failed to address the issues facing the private rented sector, resulting in continued uncertainty in the housing market up to and until the Government announced a package of measures on the 10th November 2015. Stabilising Residential Rents and Boosting Housing Supply Following months of negotiations, the Government finally announced a package of measures to stabilise rents and boost housing supply. The measures are first and foremost aimed at stabilising the escalation in private sector rents by amending the Residential Tenancies Act so that rent reviews for all tenancies will take place every 24 months rather than every 12 months as currently is the case. The rent review period will revert to 12 months after four years. Other measures to improve the rights of tenants include an extension of the notice period to change the rent to 90 days from 28 days, with the landlord having to accompany the notice with information in relation to the rents of 3 other similar dwellings in the area. In an effort to improve the awareness of tenant s rights and obligations, the landlord will be required to provide a signed statement 4
by the tenant that they have been made aware of their rights and supporting documentation in relation to market rent for 3 similar dwellings in the area. In a move to provide stability of tenure for families in the private rented sector, the package includes further graduated increases in termination notice period up to a maximum of 224 days for tenancies of 8 years or more. Further changes will protect tenants against unscrupulous landlords seeking to evict tenants under false pretences. In regard to landlords the relevant legislation is to be amended so that minor errors in the Notice of Termination do not have the effect of invalidating the notice and causing a dispute resolution case to fall. There is also to be more and faster enforcement of PRTB determination orders which will now be enforced in the District Court rather than in the Circuit Court. The package also provides a 100% interest deduction for landlords as an expense against rental income (currently 75% limit), where they commit to providing accommodation for those in receipt of social housing supports. In a separate move, the maximum rent limits applying to properties that can be accessed by people assessed as being homeless in Dublin are being increased to 50% over rent supplement limits. These measures are intended to assist such tenants compete with other tenants in the current supply constrained market. Infrastructure Programme 2016-2021 The long awaited Capital Investment Plan was announced in September and sets out the annual level of public expenditure on capital infrastructure over the next 6 years. The plan involves an allocation of 42 billion for infrastructure over the period 2016-2021, with direct exchequer funding providing 27 billion; PPP s providing 500 million, and the state-owned sector providing 14.5 billion. In total the package amounts to over 3.5 per cent of GNP each year between 2016 and 2021 and, if fully delivered on time, is expected to support more than 45,000 construction jobs. The direct exchequer funding of 27 billion covers a wide range of sectors such as transport, enterprise, housing, health, the environment and other areas. While much of the investment is focused on infrastructure development, this is vital to ensure a steady supply of commercial development. Moreover, notable investments such as the new Dublin metro rail project ( 2.4 billion) along with the extension of the Dart services may impact on the future location of new housing. While welcome, the Plan may be a political move in advance of the general election. Experience would suggest that all of the figures post 2016 are likely to be revised in due course, while a change of government could result in the plan being redundant before it commences. Acknowledging that the overriding issue is the lack of housing supply, the package includes a number of measures to stimulate new residential construction in the locations of greatest need, notably in Dublin and Cork. These measures include changes to planning guidelines on apartment standards, support by ISIF for the delivery of housing-enabling infrastructure, measures to maximise the potential of Strategic Development Zones and measures by NAMA to finance the delivery of 20,000 residential units by 2020. A targeted development contribution rebate will apply to schemes of 50 or more units where the units are priced under 300,000 in Dublin and 250,000 in Cork. 5
Economic Outlook Ireland is unprepared for population and growth surge Summary Economic Outlook In 2014 GDP grew by 5.2% and this momentum has continued on into 2015 with GDP 7% higher in the first six months of this year. This growth is being driven by both strong catch-up effects in the domestic economy and external tailwinds stemming from falling oil prices and a weak euro. As a result, Ibec predicts that GDP will grow by 5.9% in volume terms in 2015. In addition, the economy is set to expand in value terms by an unprecedented 20 billion (11%) during 2015. This means that Ireland s fiscal sustainability is rapidly converging with developed world norms with the Debt to GDP ratio expected to fall below 100% by the end of this year, down from a peak of 125% in 2013. Recovery to date has been primarily driven by growth in exports which are now 26% higher than they were in 2007. Consumption on the other hand, is still 4% below pre-crisis levels, while investment is 25% below its peak. While this suggests that there is still room for recovery existing in the economy, it will only be realised if it is managed correctly. Supply side pressures are already emerging in a number of areas such as housing, skills and infrastructure. If left unchecked over the coming years, these pressures represent a significant risk to future prosperity as we will be unprepared for a sustained demographic and economic upturn. Budget 2016 Budget 2016 consisted of a modest fiscal expansion of 1.5 billion. This amounts to 0.7% of GDP which is equivalent to one month s growth in nominal GDP at the current rate. While this was not needed to stimulate demand, it was needed to relieve supply side pressures in the economy through investment in childcare, housing and tax reform. The cuts to USC will reduce the marginal rate of tax below 50% for most workers. While it is still very high with net take home pay well below pre-crisis levels for the vast majority of workers, it is a move in the right direction and will help attract Irish talent back to the country and will make it easier for companies to attract mobile talent. The introduction of a tax credit for the self-employed is a good start in equalising their tax treatment with PAYE workers. This combined with the reductions in Capital Gains Tax were welcome and mean that this Budget has been the best Budget for entrepreneurs in a decade. While there is still much more that needs to be done for business, Budget 2016 was a step in the right direction. 6
International Economies Summary Real GDP, YoY% Change Inflation, YoY% Change 2014 2015 2016 2014 2015 2016 Eurozone 0.9 1.5 1.6 0.4 0.2 1.0 UK 3.0 2.5 2.2 1.5 0.1 1.5 USA 2.4 2.6 2.8 1.6 0.1 1.1 Emerging Markets 4.6 4.0 4.5 5.1 5.6 5.1 World 3.4 3.1 3.6 3.5 3.3 3.4 Irish GNP and its Components Annual YoY% Change 2014 Consumer spending 2.0 Government spending 4.6 Investment 14.3 Exports 12.1 Imports 14.7 GDP (Volume) 5.2 GNP 6.9 GNP (Value) 5.3 2015 2016 3.1 3.5 1.8 1.4 11.5 7.6 12.6 7.8 12.4 7.6 5.9 5.0 4.9 5.3 11.0 6.4 7
Residential Market Activity The level of supply is seriously below what the economy needs to accommodate a growing population Lack of Supply Remains Key Issue Housing supply has been the most challenging issue in the housing market since signs of a recovery emerged in 2012. Although the overall housing requirement is estimated at an average of 25,000 units per annum, the level of supply is seriously below what the economy needs to accommodate a growing population. However, the latest supply indicators are encouraging - all point to a continued improvement in the supply of new housing units, albeit from a low base. The number of units granted planning permission, although down 5 per cent quarter-on-quarter (QoQ) in Q2 2015, was up 87 per cent in year-on-year (YoY) terms. There was a substantial growth in the number of commencements, (although the changeover to a new system of collection is partly responsible) which are a better proxy for new construction. Over one-third of commencements represent single units. The level of new completions (measured by electricity connections) was up 11 per cent YoY, to give an annualised rate of over 12,000 units. Property transactions were also up in the quarter, reflecting the growing demand in the market place. While the introduction of the new housing supply measures are welcomed in terms of boosting supply, the impact may take some time to materialise. Average Mortgage Drawdown for FTBs up in Q3 despite Central Bank Rules The strong demand for residential property in the Dublin market is undoubtedly being influenced by the rise in the Capital s population. In the year to April 2015, the latest CSO population estimates indicate that the population of Dublin grew by 2.4 per cent. It is noteworthy that the population of people in their 30s grew in Dublin but fell in the rest of Ireland, which may point to internal migration of families. The recovery in housing demand is evident from trends in mortgage lending indicators. The number and the value of loan approvals were both higher in Q3 in QoQ and YoY terms. A total of 7,043 approvals were made for house purchases in Q3 with a corresponding value of 1.35 billion. The overall value of drawdowns for house purchases also increased in QoQ and YoY terms reaching 1.23 billion in Q3. Around 57 per cent of the 6,494 mortgage drawdowns for house purchases went to first time buyers (FTBs). The average mortgage drawdown for FTBs - which had been unchanged in Q2 at 166,237 - increased slightly to 172,199 in Q3 (+3.6%). The average mortgage for FTBs is approximately 4.8 times average earnings in the economy.. The increase in the average mortgage drawdown for FTBs may reflect approvals which were in the pipeline in February. However, the Central Bank measures could still dampen the average mortgage drawdown over the coming months as the new rules are bedded down. Key Regional Markets are Performing Strongly As expected, Dublin continues to dominate the national property market accounting for the majority of new housing commencements and completions. Outside of the capital, activity is focused on the Mid-East and the South-West regions. This trend reflects the proximity of the regions to the key employment markets in Dublin and Cork. The Border region is also performing strongly. The number of completions in the Border area accounted for 13 per cent of the national total, a significant majority of which were surprisingly located in Donegal. The regional split of property transactions also broadly reflects the areas experiencing economic growth with the South-West and Mid-East both performing strongly. 8
Residential Market Activity Q1 15 Q2 15 Q3 15 QoQ YoY Planning Permissions Granted 3,155 3,010 N/A - - - Houses 2,514 2,637 N/A - - - Apartments 641 373 N/A - - Commencements 1,327 2,313 2,703 17% of which one-offs 629 909 896-1% 154% 97% Loan Approvals Q1 15 Q2 15 Q3 15 QoQ YoY Total Number of Loan Approvals 6,755 7,576 8,048 6% 4% - House Purchase 6,138 6,779 7,043 4% -1% - Top Ups/Remortgage 617 797 1,005 26% 60% Total Loan Approval m 1,289 1,394 1,476 6% 4% - House Purchase m 1,200 1,295 1,348 4% 0% - Top Ups/Remortgage m 89 99 128 29% 102% Registrations* 789 1,157 1,485 28% Completions** 2,629 2,996 3,289 10% Transactions*** 10,152 10,941 11,557 6% 119% 11% National Housing Stock (000s) 1,997 1,997 1,997 0% 0% 4% Mortgage Drawdowns Total Number of Drawdowns 5,618 6,250 7,292 17% 16% - House Purchase 5,125 5,604 6,494 16% 13% - Top Ups/Remortgage 493 646 798 24% 46% Total Drawdowns m 983 1,084 1,330 23% 18% - House Purchase m 919 1,005 1,232 23% 14% - Top Ups/Remortgage m 64 80 98 23% 96% FTB Drawdown - Average 166,266 166,237 172,199 4% 3% Regional Commencements Q3 15 Regional Completions Q3 15 Regional Transactions Q3 15 800 800 4000 700 700 3500 600 600 3000 500 500 2500 400 400 2000 300 300 1500 200 200 1000 100 100 500 0 0 0 Border West Midlands MidEast Dublin SouthEast SouthWest MidWest Border West Midlands MidEast Dublin SouthEast SouthWest MidWest Border West Midlands MidEast Dublin SouthEast SouthWest MidWest Source: ww.environ.ie Source: www.environ.ie *MidWest includes all of Tipperary Source: www.propertypriceregister.ie MidWest includes all of Tipperary *Registrations refer to the number of units registered with Home Bond and Premier Guarantee. **Completions are measured as connections to ESB. *** Transactions data excludes properties that are not full market price and those under 20,000 or over 5 million. QoQ refers to the latest quarter on quarter change (Q3 on Q2). YoY refers to the latest year on year change (Q3 2015 on Q3 2014). 9
Residential Property Prices Strong price growth evident outside Dublin in Q3 Property Prices Continue to Increase A range of data exists on house prices, each of which uses a different methodology to ascertain absolute house prices and/or the rate of change in house prices. Using average mix-adjusted asking prices (MyHome and Daft), property prices nationally increased by between 6.3 per cent and 8.4 per cent year-on-year (YoY) in Q3, generating an average asking price of around 205,000. In Dublin, the average mix-adjusted asking price varied between 286,089 and 306,540; with the YoY growth rate ranging from 2.4 to 8.8 per cent. Strong asking price growth is also evident for the National excluding Dublin series, which increased 13 per cent in the year, indicating that the recovery in residential property prices has spread outside Dublin. Similar trends are evident using valuations data for Q3 (Sherry FitzGerald) which show national YoY growth of almost 5.5 per cent compared to 2.6 per cent in Dublin. The CSO Residential Property Price Index, which is based on mortgage transactions only, reported double digit annual growth across all market segments in the period up to Q2 but this growth moderated in Q3 to 7.9 per cent in Dublin and 9.3 per cent nationally YoY. The strongest price growth in Q3 was in the National ex Dublin series where prices increased over 10.6 per cent YoY. A review of the average transaction price, from the Property Price Register (not mix-adjusted), reveals that Dublin had the highest average transaction price at circa 388,000, albeit this was down 7.2 per cent in YoY terms in Q3. Nationally, the average transaction price was in the region of 237,000 while, if Dublin is excluded, the average transaction price falls to 168,500. However, mix-adjusted average transaction prices estimated by Daft are slightly lower. Outside of the capital, counties in the Mid-East region, and Cork had the highest average transaction prices, reflecting their proximity to major employment centres. Counties in the Border, West and Midland regions had the lowest average transaction prices. Residential rents in Dublin and nationally continued to increase in Q3. While rent levels reported by the PRTB (i.e. actual rents registered) and Daft (i.e. asking rents), differ somewhat, both sources indicate strong rental price growth in 2015. The most recent data available from Daft.ie shows that rents nationally have increased by 9.3 per cent in the year to Q3 2015 while increases in Dublin were slightly more modest at 8.9 per cent. Outside the capital, asking rents were up 9.7 per cent. The PRTB data, which is only available up to Q2 2015, has been showing strong growth and it will be interesting to see if this will continue for Q3. Undoubtedly, the growth in rents in Q3 has been fuelled by mounting speculation in relation to the introduction of rent certainty measures. The measures to stabilise rents, which were announced on the 10th November, will take effect in the coming weeks. It remains to be seen how these will impact on the market. Clearly, those tenants who have experienced a rent increase in the past twelve months will benefit from the introduction of the measure. However, there remains the possibility that landlords will seek to frontload rent increases for new tenants and those who have not had an increase in the past year. Depending on how the market is split between those who have experienced a rent increase and those who have not, it is possible that there could be significant rent increases in the coming quarters. 9
Residential Property Prices ASKING PRICES Daft.ie National MAAA* ( ) Daft.ie Dublin MAAA* ( ) Daft.ie National ex. Dublin MAAA* ( ) Q1 15 Q2 15 Q3 15 198,316 202,155 205,484 309,030 310,842 306,540 155,801 160,418 166,677 QoQ 1.6% -1.4% 3.9% YoY 8.4% 2.4% 13.1% MyHome National MAAA* ( ) 198,411 201,798 205,024 1.6% 6.3% MyHome Dublin MAAA* ( ) 275,600 281,958 286,089 1.5% 8.8% NATIONAL PRICE VALUATIONS Sherry FitzGerald: National (Index Q4 2001=100) 120.5 121.9 122.6 0.6% 5.5% Sherry FitzGerald: Dublin (Index Q4 1995=100) PRICES BASED ON MORTGAGE TRANSACTIONS 400.8 403.3 402.9-0.1% 2.6% CSO National (Index 2005=100) 80.3 81.5 84.0 3.1% 9.3% CSO Dublin (Index 2005=100) 82.1 83.1 85.3 2.6% 7.9% CSO National ex. Dublin (Index 2005=100) SOLD PRICES 75.0 76.1 78.9 3.7% 10.6% PPR National Average 214,732 216,138 236,783 9.6% 1.3% PPR Dublin Average 339,128 323,828 388,188 19.9% -0.4% PRR National ex. Dublin Average 154,200 157,552 168,523 7.0% 8.5% Daft.ie National MAAA* 184,802 193,243 195,101 1.0% 9.7% Daft.ie Dublin MAAA* 301,079 303,277 305,273 0.7% 2.6% Daft.ie National ex. Dublin MAAA* 140,150 150,989 152,793 1.2% 16.0% RESIDENTIAL RENTS PRTB National Standardised Rents 853 878 N/A - - PRTB Dublin Standardised Rents 1,210 1,262 N/A - - Daft.ie National MAAA* ( ) 913 934 964 3.2% 9.3% Daft.ie Dublin MAAA* ( ) 1,345 1,368 1,409 3.0% 8.9% Daft.ie National ex. Dublin MAAA* ( ) 674 694 718 3.5% 9.7% * MAAA = Mix-Adjusted Annual Average QoQ refers to the latest quarter on quarter change (Q3 on Q2). YoY refers to the latest year on year change (Q3 2015 on Q3 2014). *** Transactions price data excludes properties that are not full market price and those under 20,000 or over 5 million but includes VAT Average Sold Price by County Q3 2015 Dublin 388,189 Wicklow Kildare Meath Cork Galway Kilkenny Kerry Louth Carlow Wexford Laois Sligo Limerick Waterford Monaghan Clare Tipperary Westmeath Mayo Offaly Donegal Cavan Leitrim Roscommon Longford 313,889 261,376 220,318 207,454 169,441 165,420 156,161 150,470 147,808 140,639 138,280 134,730 134,326 133,299 130,056 127,097 126,122 124,952 122,759 114,648 112,370 110,898 106,858 96,015 81,296 Source: Property Price Register, DKM Analysis *** Transactions price data excludes properties that are not full market price, those under 20,000 or over 5 million and includes VAT 10
Commercial Office Market All indications suggest that 2015 may exceed 2014 in terms of take up Dublin Office Market The economic recovery is boosting office demand in Dublin while the lack of supply is pushing rents up further, notwithstanding that around 19 schemes are under construction. Commercial property is highly correlated with the economic cycle. It is thus no surprise that the remarkable recovery in economic growth in 2014 has been associated with a renewed confidence in the Irish commercial property market. With strong economic growth forecast for 2015, that confidence has gathered momentum. Total office transactions in Dublin reached almost 180,000m 2 in the first nine months of the year, which is equivalent to around 80 per cent of take-up in 2014 as a whole. This figure compares very favourably with a long-run average annual take-up of 167,000m 2 (CBRE) or around 177,000m 2 (JLL) over the past ten years. Three agents reported a decline in the total take-up in Q3, while DTZ Sherry FitzGerald, who measure take-up as when a building is occupied, recorded a substantial increase in take-up in Q3. Similar trends are evident for take-up in Dublin City Centre. All of the agents report that the two dominant sectors in terms of take-up are the IT and the Financial Services sectors. A trend noted by Lisney is the tendency for new and fast growing companies to seek previously occupied pre-fitted space in an effort to reduce their initial set-up costs. The most notable deals signed in the year to date were the c.12,000m 2 to Bank of Ireland of the former FÁS/Solas HQ on Baggot Street for a reported rent of 511 per m 2, and the pre-letting of 7,653m 2 to Aercap at LXV House on St. Stephen s Green for a reported rent of 645 per m 2, the highest rent achieved since the market peaked in 2007. Elsewhere prime rents have risen to between 555 and 646 per m 2 and are expected to rise further by the year-end. While the higher level of second-hand space released to the market in Q2 increased the space available by 5.5 per cent to 496,600m 2, according to DTZ Sherry FitzGerald, agents reported a contraction in the level of supply in Q3. The much publicised acute shortage of Grade A accommodation is highlighted by all agents, with CBRE reporting a Grade A vacancy rate of just 1.2 per cent in Dublin 2/4 at the end of Q3. This lack of supply in the city centre has pushed up the demand for office space in the suburbs which have accounted for around one-third of the total Dublin take-up in the first nine months of 2015 (CBRE). Following a dearth of new building over the past six years, the agents note the pick-up in development activity in both the city centre and suburban markets. CBRE reported that 19 office schemes were under construction at the end of Q3, of which 6 schemes were pre-let; the remaining 13 accounted for less than 65 per cent of a typical year s take-up in Dublin. With demand expected to expand in the coming years, this offers little prospect of the supply situation easing in the short term. However, conversely, CBRE have reported that some commentators are suggesting that there may be the potential for an oversupply situation to emerge in the Dublin market post 2018. Vacancy rates vary significantly across the different Dublin office markets. All agents are showing a continued decline in the overall Dublin office vacancy rate, albeit the rate ranged from 7.9 per cent (JLL) to 13.4 per cent (DTZ Sherry FitzGerald) in Q3. Finally, the increase in capital values has driven office yields down over the course of the year to in the region of 4.2 per cent (Lisney) to 4.7 per cent (CBRE). However, an interesting comparison with the SCSI/IPD Ireland Property Index, which covers key urban markets across Ireland s office sector as a whole, shows office yields were at 6.4 per cent at the end of September 2015. 11
Snapshot of Dublin Office Property Market Indicators Dublin Take-Up ( 000m 2 ) Q1 15 Q2 15 Q3 15 YTD CBRE 38.4 83.7 51.7 173.7 DTZ Sherry FitzGerald 66.3 26.8 86.8 179.9 JLL 31.6 88.7 55.8 176.1 Lisney 51.0 82.0 45.8 178.8 Dublin City Centre Take-Up ( 000m 2 ) CBRE 23.9 62.2 33.0 119.2 DTZ Sherry FitzGerald 38.4 7.6 21.1 67.1 JLL 13.8 55.8 25.5 95.1 Lisney 26.5 54.8 26.5 107.8 Dublin Vacant Stock/Availability ( 000m 2 ) DTZ Sherry FitzGerald 470.8 496.6 447.7 JLL 362.9 315.9 272.2 Lisney 480.0 474.0 463.6 Dublin City Centre Rents ( /m 2 ) Q1 15 Q2 15 Q3 15 QoQ CBRE 484 538 565 5% DTZ Sherry FitzGerald 530 530 555 5% JLL 592 646 646 0% Lisney 402 424 456 8% Dublin Prime Rents ( /m 2 ) CBRE 511 538 565 5% DTZ Sherry FitzGerald 530 530 555 5% JLL 592 646 646 0% Lisney 517 560 570 2% QoQ refers to the latest quarter on quarter change. (Q3 on Q2). YTD refers to year to date Dublin Vacancy Rates (%) Q1 15 Q2 15 Q3 15 QoQ CBRE 11.3 10.2 9.3-0.9pp Sherry DTZ Sherry Fitzgerald FitzGerald 14.1-0.9pp 14.9-0.9pp 13.4-0.9pp -1.5pp JLL 10.2-0.9pp 8.7-0.9pp 7.9-0.9pp -0.8pp Lisney 13.5 13.3 13.1-0.2pp Dublin City Centre Vacancy Rates (%) CBRE 9.1 8.5 7.5-1.0pp DTZ Sherry FitzGerald 7.9 8.5 9.2 0.7pp JLL 5.5 5.3 4.6-0.7pp Lisney 10.9 11.0 10.8-0.2pp Dublin CBD Vacancy Rates (%) CBRE 7.0 6.2 5.4-0.8pp DTZ Sherry FitzGerald 7.9 8.5 9.2 0.7pp Lisney 9.5 9.4 8.9-0.5pp Dublin Office Yields (%) CBRE 4.8 4.8 4.7-0.1pp DTZ Sherry FitzGerald 4.3 4.3 4.3 0.0pp JLL 5.0 5.0 4.5-0.5pp Lisney 4.5 4.3 4.2-0.1pp SCSI IPD 6.5 7.4 6.4-1.0pp 12
Commercial Property Market Supply remains the main challenge in the industrial and retail sectors Demand for industrial space in Dublin rising strongly The industrial market in Dublin continues to perform strongly, notwithstanding the significant shortage of good quality modern industrial units. Estimates suggest the total available stock on the market in Q3 was around 1 million m 2, marginally lower than earlier estimates for Q1 and Q2 (DTZ Sherry FitzGerald). Take-up levels vary between 91,200m 2 (JLL) and 137,200m 2 (Lisney) in Q3, with all agents reporting an increase relative to Q2, by as much as 69 per cent, according to Lisney. Thus, the total take-up in the first nine months, at between 293,400m 2 and 336,000m 2, is already around 70 per cent higher than the total amount of space taken up in the corresponding period of 2014. As a result, the overall vacancy rate has fallen sharply since the start of the year. The take-up represented some 44 deals, of which 4 involved transactions greater than 4,650m 2 (JLL), while the average ranged between around 2,000m 2 (JLL) and 2,800m 2 (CBRE). The agents report the South-West corridor as the dominant location of choice, accounting for between 35 per cent (CBRE) and 52 per cent (JLL) of all take-up across the county in Q3. Sales of industrial buildings as opposed to lettings accounted for the majority of transactions in the quarter, reflecting the value which still exists in the market. Prime industrial rents were between 72.50 and 75.30 per m 2 in Q3, generating single digit increases over the quarter, although one agent (DTZ Sherry FitzGerald) reported no change over the quarter. In Q3, most agents reported a compression in industrial yields since the start of the year. Further signs of the emerging recovery in the industrial market are evident with the resumption of industrial construction. Two projects are under construction at the Horizon Logistics Park beside Dublin Airport by Green REIT, comprising two industrial warehousing units of around 2,000m 2 and 4,000m 2 respectively. Horizon s good location is likely to be sought after and has the capacity to supply over 90,000m 2 of industrial space. Properties in good locations is the challenge for retail The upward trend in the KBC/ESRI Consumer Sentiment Index over the past two years alongside the 9 per cent increase in the volume of retail sales in the first nine months of the year are encouraging for retailers. Moreover, consumer spending staged its first rebound in 4 years in 2014 and recent forecasts expect it to improve further in 2016, supported by employment and income growth as well as historically low interest rates. This is all welcome news for the retail property market which is witnessing a notable increase in demand for space from new entrants as well as from existing Irish retailers looking to expand. The real challenge, according to CBRE, is the scarcity of properties in the locations and schemes that retailers are specifically targeting, with many prime high streets and shopping centres now at full occupancy. Conversely, in the retail warehousing sector, over-supply is still an issue in many regional locations, with Lisney commenting that Ireland has 352m 2 of retail park accommodation per 1,000 of the population compared with the EU 27 average of 232m 2, and 264m 2 in the UK. As consumer demand continues to recover and as deals are completed on a number of retail investment portfolios across the country, such as Project Jewel (retail assets in Dublin) or the Hazel Portfolio (retail assets in Cork, Galway and Drogheda), the requirement to refurbish existing retail units or invest in new capacity may increase. In Dublin, Zone A headline rents are reported to be around 5,500 per m 2 in Grafton Street, 4,000 per m 2 in Dundrum Town Centre and 3,500 per m 2 in Henry Street, and in the region of 2,250 to 2,500 per m 2 in out of town shopping centres (CBRE). Retail yields vary from 3.5 per cent in the High Street to 5.25 per cent for prime shopping centre space. 13
Snapshot of Dublin Industrial Property Market Indicators Dublin Take-Up ( 000m 2 ) CBRE JLL Lisney DTZ Sherry FitzGerald Lisney Q1 15 Q2 15 Q3 15 YTD 86.3 98.2 128.0 114.3 87.9 91.2 100.8 81.3 137.2 1,165 1,113 1,046 941 312.5 DTZ Sherry FitzGerald 95.8 112.5 127.7 336.0 Dublin Vacant Stock/Availability ( 000m 2 ) 293.4 319.3 Dublin Prime Rents ( /m 2 ) CBRE DTZ Sherry FitzGerald JLL Lisney Dublin Vacancy Rate (%) DTZ Sherry FitzGerald Lisney Dublin Yields (%) CBRE DTZ Sherry FitzGerald JLL Lisney SCSI IPD Q1 15 Q2 15 Q3 15 QoQ 65.0 70.0 72.5 3.6% 70.0 75.0 75.0 0.0% 70.0 70.0 75.3 7.6% 70.0 74.0 75.0 1.4% 28.7 27.4 25.8-1.6pp 18.0 16.0 14.5-1.5pp 6.5 6.5 6.3-0.3pp 6.5 6.3 6.0-0.3pp 7.0 7.0 7.0 0.0pp 6.2 6.0 6.0 0.0pp 8.1 6.0 4.8-1.2pp QoQ refers to the latest quarter on quarter change. (Q3 on Q2). YTD refers to year to date. 14
Commercial Regional Market Levels of take-up weakened across all three regional markets in Q2 2015 Based on information in the public domain, it seems that few agents capture comprehensive data on commercial property markets outside of Dublin. Accordingly the overview of the regional markets in Q2 2015 (latest available) is mostly sourced from DTZ Sherry FitzGerald and Lisney. The level of office supply declined in Cork and Galway in Q2 but remained stable in Limerick compared with Q1. Healthy occupier demand was responsible in Cork while a slowdown in the rate of release of secondhand property reduced availability in both locations. In Limerick supply levels were high but quite volatile. An analysis of vacancy rates in the suburbs reveals that Limerick had the highest vacancy rate at end of Q2, at 16.9 per cent while vacancy in the Cork Suburbs was 13.7 per cent. In the corresponding city centres, the vacancy rates were 21.9 per cent in Limerick and 19.2 per cent in Cork. All are well above what would be considered a normal vacancy rate of around 7 per cent. Although Grade A office space continues to be the most preferred choice for tenants, the supply is shrinking rapidly in Galway and no location had any Grade A units available above 5,000m 2 in Q2. Levels of take-up weakened in all three locations, declining to 9,100m 2 in total in Q2, down 57 per cent on Q1 levels. The significant decline was partly due to the occupation by Hewlett-Packard in Q1 of its purpose-built innovation centre in Galway. Transactions activity was strongest in Cork, as it accounted for one-half of the total take-up across all three counties in the first six months. Finally prime headline office rents rose in Q2 and were highest in Cork ( 245 per m 2 ), reached around 215 per m 2 in Galway and were stable in Limerick over the quarter. The total amount of space under construction at the three locations was estimated at 43,450m 2 (DTZ SF); or broken down by location, it represented 10 per cent of the available supply in Galway, and 18 per cent and 35 per cent respectively in Cork and Limerick. In Cork, the development under construction at One Albert Quay consists of around 15,500 m 2 of lettable space and is due to be completed in Q1 2016. Deals have already been signed with two tenants, Tyco and PWC for over half of the lettable area. Also in Cork, a decision is awaited from An Bord Pleanála on the proposed redevelopment of the former Capitol Cinema and adjacent buildings at the Grand Parade in Cork, with a mixed-use scheme comprising 11,782 (gross) m 2 of retail, offices and a Food Innovation Area. In Limerick significant real estate development is likely over the medium-term following the identification of seven strategic sites for development by the Limerick local authorities, including the Opera Centre site which is being prioritised for development. A similar analysis of the industrial market reveals an overall drop of 11.5 per cent in stock availability levels in Cork in Q2 on the previous quarter, with take-up levels also lower by around one-third. In contrast, takeup levels were up strongly in Limerick (+56%) in the same period. Vacancy rates were highest in Limerick overall at 22.9 per cent compared with a rate of 11.8 per cent in Cork and less than 9 per cent in Galway, where stock availability levels were also lower in Q2 compared with Q1. As the improved economic conditions spread more into the regions, the levels of take-up can be expected to pick up, while rents may come under further pressure until such time as the supply demand balance is restored. 15
Regional Market Indicators TAKE-UP (m 2 ) Cork* Cork Galway Limerick VACANT STOCK/AVAILABILITY (m 2 ) Cork* Cork Galway Limerick OFFICES INDUSTRIAL Q1 15 Q2 15 YTD Q1 15 Q2 15 YTD 5,000 10,000 9,350 5,750 15,100 19,950 13,250 33,200 8,350 550 8,900 10,850 7,650 18,500 3,400 2,800 6,200 7,500 11,700 19,200 94,000 233,000 99,350 86,850 191,650 169,700 22,750 22,450 44,750 42,700 71,950 72,300 211,650 209,000 PRIME RENTS ( /m 2 ) Cork Galway Limerick VACANCY RATE (%) CORK Cork* Cork Overall Cork City Centre Cork Suburbs GALWAY Galway Overall Galway City Centre Galway Suburbs LIMERICK Limerick Overall Limerick City Centre Limerick Suburbs Limerick Shannon Free Zone *Source is Lisney. All other data is from DTZ Sherry FitzGerald. Q1 15 Q2 15 QoQ Q1 15 Q2 15 QoQ 240.0 245.0 5.0pp 47.5 50.0 5.3% 193.0 215.0 22.0pp 43.0 43.0 0.0% 150.0 150.0 0.0pp 38.0 38.0 0.0% 19.10 18.10 15.80-2.3pp 20.10 19.20-0.9pp 16.90 13.70-3.2pp 7.50 7.40-0.1pp 8.50 9.20 0.7pp 6.90 9.20 2.3pp 20.70 20.80 0.1pp 22.30 21.90-0.4pp 16.20 16.90 0.7pp 24.40 24.40 0.0pp QoQ refers to the latest quarter on quarter change (Q3 on Q2). YTD refers to year to date. 16
REITs Performance The three REITs established to date have assembled a portfolio of commercial and residential property valued at 2.15bn 1.8bn raised by Irish REITS The 2013 Budget provided for the establishment of Real Estate Investment Trusts (REITs) in Ireland. As listed companies which hold rental investment properties, REITs are subject to certain restrictions and are exempt from Irish corporation tax on both qualifying income and gains. From an investor perspective, REITs allow for a diversification of risk and investment through shared ownership of a large portfolio of different properties. The purpose at the time was to assist in the recovery of the property market, which had experienced one of the most severe contractions in its history in terms of price deflation, transactions and activity levels. The introduction of REITs would also assist NAMA in deleveraging its portfolio, thus allowing the restoration of more sustainable levels of activity in the residential and commercial property markets, and they were also expected to attract international investment. Since provisions for REITs were included in the 2013 Finance Act, three such companies were established which between them, have raised a total of 1.8 billion. This figure excludes the close to 1 billion spent by Kennedy Wilson s European business on Irish property assets since 2011. Overall Investment Portfolio of almost 2.8 billion The three REITs established to date have assembled a portfolio of commercial and residential property valued at 2.15 billion over the past two years. Including Kennedy Wilson s Irish portfolio, the total investment is closer to 2.8 billion. All have a high concentration in the Dublin market, especially in offices, which account for 60% by value of the total portfolio assembled to date. The IRES REIT, focused on investment in multi-unit residential property, accounts for the vast bulk of the 1,875 residential units held by REITs in Dublin. The total portfolio of the three REITs generates a contracted rent in the region of 100m. Given the recovery in the property market to date, and the reduced opportunity for value proposition compared with the last two years, the focus is expected to switch somewhat from acquisition to active management of existing portfolios. That said all three are chasing a number of potential acquisitions and have site development projects underway. Significant Development in Pipeline Separately Kennedy Wilson is progressing their 37,700 sq. ft. office development at Baggot Plaza, Dublin 4 (adding to the existing 91,600 sq. ft building) which has been pre-let to Bank of Ireland for a 25-year lease at a headline rent of 47.50 per sq. ft. The company received planning permission in September 2015 to upgrade the Stillorgan Shopping Centre in Dublin. Construction is also underway on the Block K development at Central Park in Dublin 18, which is a 166 residential unit development including 15,000 sq.ft. of commercial space. Completion of both developments is expected by summer 2016. In the leisure sector, Kennedy Wilson is also carrying out upgrade works at the 138 room Portmarnock Hotel & Golf Links in County Dublin. 17
Overview of REITs Performance GREEN REIT plc HIBERNIA plc IRES REIT plc Kennedy Wilson Period 30 June 15 30 Sept 15 30 June 15 30 June 15 Date Incorporated m. raised since incorporation 24 June '13 700 13 Aug '13 685 2 July '13 415 Feb 14 1,000# PORTFOLIO Value of Portfolio ( m) 968 739 447 573 Number of Properties 24 21 13 17 Portfolio Income Yield % 5.2 5.1 5.5 5.0 % of Portfolio located in Dublin (by value) INVESTMENT BY ASSET CLASS (Value, m.) Residential 95 100 110 (15%) 100 447 (100%) 89 73 (13%) Offices 731 (75%) 618 (84%) 252 (44%) Retail 189 (20%) 131 (23%) Industrial Other 11 (1%) 38 (4%) 11 (1%) 117 (20%) PORTFOLIO STATISTICS Total Portfolio (sq. m) 208,103 713,000 12,364 111,484 Number of Tenants Number of Residential Units 150 34 313 1,566 Total Contracted Rent Roll ( m) 55.7 34 11.2 65.9 Office Occupancy Rate % Residential Occupancy Rate % 98 99.0 99.0 99.5 98.9 89.5 AVERAGE CONTRACTED RENT ( /sq. ft) Offices 27.8 32.0 36.3 Retail 19.3 30.2 Industrial Residential - average monthly rent (euro) 7.2 1,364 1,503 FINANCIAL PERFORMANCE Net Profit before Tax ( m) 156.7 73.7 14.8 ** NAV per Share (cents) 134.8 122.1 100.6 ** Sources: Green results based on 2015 Annual Report y/e 30 June 2015. Hibernia results based on Interim Results for the six months to 30 September 2015. IRES results based on Interim Results for six months to 30 June 2015. Kennedy Wilson results based on results for Kennedy Wilson Europe Real Estate plc for six months to 30 June 2015. Where figures are reported separately for Ireland they are included in the above table. Figures are in sterling unless otherwise stated. # This 1 billion is the value of the IPO launched by Kennedy Wilson Europe Real Estate Plc, which was initially focused on commercial real estate investment in the UK, Ireland and Spain. ** Not separately identified for Ireland but total Profit before Tax for Kennedy Wilson Europe Real Estate plc was 152.5m and NAV per Share was 1,114.5 pence. Total Property Portfolio by Sector Industrial Mixed Use/Other Retail Dublin Residential Dublin Offices 232m 1% 275m 3% 2361m 13% 2660m 24% 21,673m 60% Developments in Pipeline by Building Type Offices Retail Industrial Total Hibernia* Refurbishment 195 2 197 Development 179 10 189 Total Green** 374 12 386 New U/C 190 44 234 In Planning 189 0 189 Total IRES 379 44 423 Development pipeline (apartments) = 550-600 units * Hibernia figures in NIA, 000 s sq. ft. ** Green figures in GIA, 000's sq. ft. 18
Investment Market Continues Apace Total investment in Irish property assets projected to be around 3 billion in 2015 The Irish economic recovery combined with deleveraging activity by NAMA and banks as well as the exit of foreign banks has been associated with an increasing global appetite for Irish commercial real estate. That increasing appetite is reflected in transactions which consist of both loan sales and asset sales. While the focus of attention here is investment in property assets, which a number of property agents expect to exceed 3 billion this year, compared with 4.5 billion in 2014, the face value of sales of commercial real estate loan portfolios was 22 billion in 2014, although many would have been sold at a discount. Two recent examples include Project Jewel, a portfolio of loans sold by NAMA (the Dundrum Town Centre, half the shares in both the Ilac and Pavilions shopping centres in Dublin along with a substantial parcel of land between O Connell Street and Moore Street in the city) to the UK listed property company Hammerson and Allianz Real Estate of Germany for a total of 1.85 billion; and the Project Arrow portfolio, with an estimated value of 6.25 billion, for which the preferred bidder, the US private investment company, Cerberus, is thought to have recently bid about 800 million. In regard to assets sales, the investor profile has been dominated by institutional investors, most notably REITs, who have been aggressively buying up commercial and residential real estate over the past two years. A significant number of large deals happened in 2014, with the largest office deal in the opening months including the acquisition by Blackstone of four buildings as part of the Platinum Collection portfolio for a reported 165 million. Other notable examples include Central Park by NAMA to Green/Pimco/ Kennedy Wilson for 311 million, the Sapphire Portfolio made up of the assets of the Cosgrave Property Group and the sale by Aviva of 73 per cent of its interest in Liffey Valley Shopping Centre to a Hines consortium. IRES, the Irish residential REIT, bought the three largest lots offered for sale in the residential market, notably Project Orange ( 211.5m, 761 units), Rockbrook Estate ( 88.9m, 270 units) and the Marker Residences ( 50.1m, 84 units). Lisney estimate total investment turnover in commercial property reached more than 2.2 billion in the first three quarters of 2015. Project Molly was one of the most significant deals, comprising the Iveagh Court, the Watermarque Building and Marsh House, and sold for a reported 350 million by Lonestar to Starwood Property Trust. Other asset sales reported by CBRE and Lisney include the Sovereign Portfolio, which contained a mix of retail and office assets in Dublin City Centre, and was sold by Royal London to Irish Life for a price reportedly in excess of 150 million, the National Retail Park portfolio (included retail in Letterkenny, Tullamore and Killarney and Dublin) sold for more than 170 million and the Block R office building in the Dublin Docklands, comprising almost 12,000 m 2 of Grade A office space, which made over 104 million. Among the significant property assets currently up for sale in Dublin are One Spencer Dock on the North Wall Quay (guide price 240m), an office and residential portfolio at Elm Park ( 185m), Project Copper, comprising the Bloodstone and Central Quay office building in the Docklands ( 120m) and the HQ of AirBnB on Hanover Quay ( 30m). Although Dublin is the predominant location, investor demand is expanding into other regional cities and towns where a significant number of other commercial properties have come to the market. According to Lisney, many investor believe there is now greater value in these regional cities and there is likely to be greater scope for growth in these markets. 19
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Special Report Why do apartments in Dublin City Council cost up to 20% more than Fingal or South Dublin County councils? Excerpts from PII Paper presented by Paul Mitchell of Mitchell McDermott. In 2007 the Department of Environment, Community and Local Government set out the new national minimum standards for apartment design. These sought to address the shortfall in the 1995 standards by increasing minimum floor areas (by an average of 20%) and adding further minimum design criteria. However, less than a year later, a number of the local authorities decided to exceed the national standards with some adding a further 20 per cent to the floor areas. They also added other very costly minimum design standards, some with questionable value add. To examine the real additional construction costs of compliance with the design standards in different county and city development plans, we designed a 100-apartment development which was in compliance with departmental guidelines and amended some design features to bring them in line with five existing development plans. The headline figures are in the table opposite. Some of the local authority s additional requirements are laudable, however the main question is affordability. There is little point setting the design bar so high that purchasers cannot afford an entry level apartment. In the Dublin City Council Draft Development Plan 2016-2022, which is currently at public consultation stage (Oct 15-Dec 15), the local authority sought to address some of the issues highlighted above. The main changes to the current plan include: Introduction of a 45 sq m studio in schemes over 100 units (build to let schemes only) Increase the ground floor height from 2.7m to 4.0m. Reduction in the Dual Aspect requirement from 85% to 50% Change the maximum number of 1 Beds allowed to 30% from 20% Change the average 85 sq m requirement to a target range of 80-90 sq m The financial impact of these changes involves a net reduction in cost of 12,000 for a 2 Bed apartment. The change in the dual aspect requirement should facilitate the ability for developers to achieve 4 apartments per core which negates the 16,000 additional cost previously attributable. The additional height on the ground floor apartments adds 27,000 to the cost of a 2 bed ground floor apartment. When this is divided by the overall number of apartments in our 100 apartment example this reduces to 5,000. It is unfortunate to see additional costs being added to apartment design when schemes are still not viable under the current regulations. It is noted that in the recently announced package of measures to stabilise rents and boost housing supply, the Minister has stated that he will use his powers under the Planning and Development Acts to issue guidelines on apartment standards which will set a consistent national approach and ensure that planning authorities do not seek requirements above the national standards. 21
Dublin City Council Additional Design Standard Requirements 1. Additional floor area 2. Additional floor to ceiling height (2.4m->2.7m) 3. 85% Dual Aspect (windows on more than one side) 4. Balcony Design Additional construction cost (2 bedroom apartment) 4. Additional Balcony Design Cost on a Typical 2 Bed (c.20%) 38,000 Additional value for occupier? Scope for reform? 13,000 1 Beds & Studios 6,000 Yes - On upper floors 16,000? Yes - set min. at 50% 3,000 - Yes - leave to planners Additional construction cost for 100 apartment scheme Guidelines Additional Cost % Increase DECLG Guidelines Dublin City Council Dun Laoghaire Rathdown South Dublin Council Fingal County Council Cork City Council 0 3.62m 2.54m 0.50m 0.80m 3.45m 0% +20% +14% +3% +4% +19% 22
AIB s Specialist Property Lending Unit Dynamically engaging with the construction and property industry AIB has established a specialist property lending unit which is dynamically engaging with the construction and property industry. The new unit, led by David Renwick, Head of the Property Lending Unit, is a centre of excellence for property related finance activities. The AIB Property Lending Unit is focused on meeting the financing needs of its existing and prospective customers operating in the property market, tailoring solutions to specific transactions and customer requirements. The property financing market has changed and typically customers now use a mixture of equity, mezzanine finance and senior debt when it comes to funding their projects, whereas in the past most of the finance required probably would have come from a bank. To reflect the considerable changes that have occurred in the marketplace over the past few years, AIB s new property lending unit has a multi-disciplinary team of professionals that includes chartered surveyors and engineers, working alongside experienced property lenders. Paul McNamara, a Chartered Surveyor with over 25 years experience in private practice and more recently with NAMA, joined the AIB property team in August 2014 to support the provision of property sector insight for the bank s property strategy. In support of AIB s brand values of putting our customers first and of keeping it simple, the bank has also adopted a strategy to provide property funding for our customers through our Branch, Business Centre. AIB has specialist business banking teams based in Dublin, Cork and Galway supporting the provision of funding for commercial real estate investment opportunities regionally as well as offering a full suite of banking services to Business customers. Through its Business Centres and the specialist Property Lending Unit, AIB are very active in providing finance for Commercial Real Estate investment across the main sectors (office, retail & industrial) and across locations (City and Provincial). AIB are also active in the provision of finance for residential development. The 350m fund that AIB set up last year to provide finance to house builders across the country has met with considerable success. AIB has an active pipeline and continues to look for lending opportunities in the Commercial and Residential investment and development markets. Contact Details for the AIB Property Lending Unit are as follows: David Renwick, Head of Property Lending Unit Tel; 01 641 1991 Email; david.j.renwick@aib.ie Paul Dowling, Head of Development & Specialist Assets Tel: 01 7726356 Email: paul.s.dowling@aib.ie Ciaran Mooney, Head of Commercial Real Estate Investment Tel: 01 7726355 Email: ciaran.e.mooney@aib.ie Paul McNamara, Head of Property Strategy & MI-Property Lending Unit Tel: 01 641 9347 Email: paul.c.mcnamara@aib.ie Contact details for the AIB Business Banking teams are as follows: Ray Lynch Head of New Business Dublin & East Tel: 087 2435905 Email: ray.w.lynch@aib.ie John Heapes Head of New Business Galway & West Tel: 086 381 2554 Email: john.heapes@aib.ie Michael Hayes Head of New Business Cork & South Tel: 086 465 8530 Email: michael.g.hayes@aib.ie 23
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Methodologies CBRE Ireland work off standard definitions across EMEA to ensure consistency and facilitate comparison. Our definition of vacant stock is all stock that is being marketed to let at the end of each quarter. Vacancy rate in turn is all available stock expressed as a percentage of overall stock at the end of each quarter. Grade A vacancy rate refers to all Grade A stock expressed as a % of overall stock at the quarter-end. Take-up refers to all leasing activity in the office sector whereas our definition of take-up also encompasses sales in the industrial sector. We analyse Dublin offices by collating stats by the following postcodes/districts; Dublin 1/3/7, Dublin 2/4, Dublin 6/8, IFSC, North Suburbs, South Suburbs and West Suburbs. Our definition of city centre includes the postcodes of Dublin 1/3/7, Dublin 2/4, Dublin 6/8 and the IFSC while our definition of CBD is Dublin 2/4 only. Prime rent refers to the prime headline rent being quoted in the market at a particular point in time while prime yield refers to a net equivalent yield for a prime property let to a strong covenant on an FRI lease with 10 years unexpired and subject to open market reviews (upwards and downwards). Contact: marie.hunt@cbre.com DTZ office take up records occupation of a building by a tenant. In a bid to avoid double counting and accurately track net absorption rates, signed and reserved space is excluded. Lease re-gears are also omitted. Industrial take up comprises letting and sales activity. Both office and industrial take up excludes investment transactions. The vacancy rate for the Dublin office market is calculated excluding Georgian accommodation. The vacancy rate for the Limerick office market is calculated excluding Georgian accommodation. The vacancy rate for the Cork industrial market excludes the South East and Ringaskiddy. The Central Business District incorporates the prime area of Dublin city and extends to the IFSC and the North & South Docklands and prime fringes such as Ballsbridge. Contact: marian.finnegan@sherryfitz.ie In the Dublin office sector, the City Centre region is taken as in the east, all areas from the Merrion Gates to East Wall Road; in the north, along the canal ring; in the west, to Kilmainham; and in the south, along the canal to Ballsbridge and then all areas east of here to the Merrion Gates. For the purposes of this report, we have taken the CBD to include the traditional core in Dublin 2 plus the docklands; those parts of Dublin 1 and Dublin 7 that are along the quays; and the parts of Dublin 4 and Dublin 8 that are adjacent to Dublin 2. Contact: abrennan@lisney.com The information is based on JLL primary data which is collected and analysed on a quarterly basis. Data is evidence-based and uses information from actual market transactions during the quarter. Office stock comprises all Dublin stock constructed post-1960 and therefore does not include Georgian properties. Office demand is recorded by using gross take-up levels for all deals (lettings and sales). This includes expansions, relocations, and new occupiers. JLL industrial take-up records the letting and sales activity by occupiers of space that has been released onto the market. It does not include land sales, investment transactions or lease re-gears. Prime rents represent the highest achieved rents for the best-quality (Grade A) properties in the core locations that were recorded for that quarter. The yields reported are based on evidence from transactions and reflect the prime yields for each sector. Contact: hannah.dwyer@eu.jll.com The Sherry FitzGerald Barometer of second-hand house prices is an analysis based on a repeat valuation method. This index has been in place since 1996 for Dublin and 1999 for the national market. It analyses trends in the second hand market only, based on an analysis of a basket of properties in all of our locations nationwide. Each basket of properties was chosen based on a weighted profile of properties in each location. The basket extends to over 1,500 properties. The price of a sample of properties that sold in a particular period is re-valued each quarter and these valuations are used to construct a house price index for existing houses. Repeat valuation of a fixed sample of properties ensures that the mix does not change between time periods and it also provides live up to date market analysis, without any lag which an analysis of mortgage drawdowns is subject to. It also facilitates an analysis of both the active and inactive elements of the market thereby giving a fuller picture of market deflation. Contact: marian.finnegan@sherryfitz.ie The statistics are based on properties advertised on Daft.ie for a given period. The regressions used are hedonic price regressions, accounting for all available and measurable attributes of properties, with a Cooks Distance filter for outliers. Indices are based on standard methods, holding the mix of characteristics constant, with the annual average of 2012 used as the base. Average sample sizes are 89,000 (sales listings) and 5,800 (sales transactions) and 10,000 (rental listings). For more on the methodology, please see www.daft.ie/research. Contact: media@daft.ie The data are based on actual asking prices of properties advertised on MyHome.ie with comparisons by quarter over the last eight years. Our main indices have been constructed with a widely-used regression technique which adjusts for change in the mixture of properties for sale in each quarter. Our method is designed to reflect price change independent of this variation in mix. Contact: angela@myhome.ie DKM have compiled the data presented on the residential and commercial property market from a range of sources, including the Department of the Environment, Heritage and Local Government (DEHLG), the Central Statistics Office (CSO), the Banking and Payments Federation of Ireland (BPFI), Daft, MyHome, the Private Residential Tenancies Board (PRTB), the above property agents and the individual websites for the REITs. Contact: info@dkm.ie 26
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