The consequences of the pandemic have spread far and wide, disrupting every aspect of the Irish economy. The rental market was no exception. However, the rebound in the private rental market is underway and Tim Cahill, Managing Director of Grayling Properties, discusses what is actually hastening its recovery.
Despite experiencing a substantial drop in April 2020 as the first lockdown commenced, the private rental market (PRM) has begun making great strides on the road to recovery. The continued roll out of the Government’s vaccine programme, combined with the re-opening of our economy and surprisingly strong demand for office space, have led to vacancy rates falling in city centre locations in Q2 2021.
It is a trend, given the chronic undersupply of residential units, that will continue as more renters move back to the city, likely driving rental levels back to pre-Covid levels (and potentially beyond).
At Grayling Properties, we manage over 1,000 units in Dublin City Centre locations. During the pandemic, as foreign renters returned home & vacancy rates soared to an astonishing 15.4% (normal level is 2%), rents fell by 11% (peak to trough) across these portfolios, reaching their lowest levels in Q4 2020. However, that trend has reversed over recent weeks in terms of both falling occupancy rates and rental levels and the data shows that the market conditions are once again rapidly improving, as demand outstrips supply.
In fact, over recent months, we have already seen rents increase in studios and 1 bed properties as tenants have begun to return. This will continue to keep pace as the economy bounces back.
REOPENING OF THE ECONOMY
In 2020, the Dublin rental market took the hardest hit, with the CSO recording a drop of 90,000 renters. This was due, in part, to the Capital’s high concentration of young professionals leaving the city as offices and non-essential services closed.
Vacancy rates peaked in June as it became clear that the return to ‘normal life’ was not happening anytime soon and many tenants returned to their home country/city. As a result of rising supply, rents began to fall, with the largest rental declines occurring in Dublin 1 and 2, -5.2% and -9.3% respectively (according to daft.ie), due to the transient nature of tenants living in this area.
This drop in rents was further bolstered by property-owners withdrawing their properties from short-term rental sites (such as Airbnb) in lieu of long-term rentals to adapt to travel restrictions implemented by the Government.
However, with the re-opening of a large majority of non-essential services and plans being put in place by companies to get workers back into the office, we have seen an influx of young professionals returning to the city with enquiries & viewing numbers spiking dramatically over recent weeks. This trend is likely to accelerate over the coming months, especially when the hiring policy of the large tech multinationals is taken into account.
In tandem with the reopening of the economy, the market has experienced a mirrored fall in the vacancy rate. This is something we have seen through our portfolio of city centre properties, and it is validated by the latest Daft.ie report, which flagged that there were only 2,455 homes available to rent in Ireland as of 1 August 2021 – the lowest figure ever recorded.
STRONG ECONOMIC GROWTH
Another factor fuelling the city centre rebound is the robustness of the Irish economy. Despite many industries closing for the better half of a year, Ireland was the only EU nation to register positive growth in 2020. This favourable trend is set to continue this year with the economy set to grow an additional 4.2%.
This positive economic outlook, credited to the strong performance of tech multinationals and pharmaceutical companies, underpins the confidence of the commercial construction sector. This is reflected in continuing major office developments in Dublin city centre.
Considering that the single biggest driver of demand for city centre rental accommodation is new office workers moving to the city, with 42% of these new office developments already pre-leased, further strain will be placed on our limited supply of housing, driving rents higher.
SHORTAGE OF NEW UNITS
Another key factor fuelling the rebound of the rental market is the severe shortage of new residential units. Across Ireland, the level of demand for housing significantly exceeds supply, a problem that has only been exacerbated by a delay in delivery of residential developments due to site closures resulting from the pandemic.
A considerable number of small landlords have sold their properties and left the market altogether — a trend which will continue as rising property prices incentivise the move. Although cashing in on attractive market conditions is not the only motivating factor, unfavourable tax conditions and increased regulations within the sector have forced many small landlords to sell their portfolio.
As a result of dwindling supply, rental prices will continue to increase. We can expect that whatever reduction in rents that may remain from the pandemic rent drop will be reversed – at least until our current weak levels of residential development catches up to the growing rate of office supply.
Looking forward, we face an unprecedented shortage of residential accommodation, an issue that policy makers attempted to address in the Government’s recent ‘Housing for All’ plan. As previously documented, we believe the way to tackle this shortage is through re-thinking our approach to conservation laws, embracing high-density residential developments, increased capital spend on infrastructure to unlock landbanks, restructuring our planning system or increasing supply through forward funding. But whether this type of more progressive thinking is embraced by policy makers remains to be seen.