The first half of 2023 brought about great change for the private rented sector (PRS). Geopolitical events, inflation levels, increasing interest rates and sustainability have all had a major impact on the market.
Ireland’s housing crisis has been an ongoing discussion for the past number of years. Bridging the gap between supply & demand is a top priority across the nation and with 2023/24 anticipated to bring added pressure on viability and in-turn residential commencements, demand for residential accommodation will remain robust.
Managing Director of Grayling Properties, Peter Horgan shares his thoughts and forecasts for the year ahead in relation to multifamily developments, the private rented sector, and sustainability.
Multifamily Completions and Rents
Occupancy and rental growth accelerated last year as more people returned to the city post pandemic. Employment growth remains strong in Ireland increasing by 4.1% in the year to end Q1 2023, with the unemployment rate now standing at a record low of 3.9%. As a result the volume of rental stock available in Dublin has also fallen to an all time low, as rental levels increased by 13.7% in the year.
There were 9166 apartments completed in Ireland in 2022, a high for this cycle and an increase from 5135 in 2021. With the economy and employment recovering strongly post covid and a number of private landlords leaving the sector this extra supply was easily absorbed. Looking at the long term, to meet demand and to hit the governments housing for all targets apartment completions need to continue to grow. However viability issues will make this difficult with a number of schemes stalled. Government initiatives to boost the delivery of social and affordable housing are welcome, however market rent apartments are also needed. The removal of the BTR and co-living planning designations have made it more difficult to deliver these.
Rental growth remained strong Dublin in Q1 2023 at 11.2% YoY. However pace of growth is slowing with QoQ growth of 0.5% versus an average of almost 3% during 2021/22 (source Daft.ie). In the short term we would not be surprised to see rental growth ease further with a number of new large schemes hitting the market over the summer months.
PRS Investment Market
Residential investment volumes accounted for c.31% of the €5.8bn of capital invested into Ireland in 2022. Though the overall spend in Ireland’s commercial property sector in Q1 proved to be relatively subdued equating to just over €470 million with inflation and rising interest rates reducing demand, investment in the PRS market accounted for over 50% of the market, albeit at a much lower level in contrast to previous years.
The sector in Ireland relies on three main factors which include a continual increase of population in urban areas, strong employment growth driven by the multinational sector and a shortage of supply to meet these demand drivers. BTR will play a key role in easing the pressure on the housing crisis in Ireland. One of our most recent projects, Rathmines House, expected to launch later this year will see a derilict commercial unit converted into a co-living space providing premium accommodation to more than 110 residents.
PRS is a growing sector in Ireland with an important part to play in increasing housing supply. Today, approximately 18% of households in Ireland are private rentals, a significant increase from 8% in 1991. Dublin’s population increased by 12% between 2011 and 2022. This strong growth is expected to continue at a rate of 7.7% between 2023 and 2030. With more and more young professionals flocking to the city to take advantage of career opportunities and inward migration accelerating, the changing demographic of the city is driving demand for more PRS developments.
Now, more than ever, sustainable practices are increasingly impacting the decisions of real estate investors and occupiers alike; affecting factors such as pricing and shaping the future of the built environment. Earlier this year, the European Parliament’s Committee on Industry, Trade, Research and Energy voted on a new review of the Energy Performance of Buildings Directive with the aim to upgrade buildings to zero emissions by 2050, coming into effect in 2023.
To date, the Irish Residential market has made incredible progress in providing energy efficient design and higher density developments. Ireland has gone from only 1% of residential dwellings built between 2005-2009 having a BER “A” rating, to 99% of dwellings built between 2020-2023 having the same.
Both investors and occupiers are continuing to showcase their demand for the most sustainable building stock. This trend calls for an increased focus on the refurbishment and repurposing of older disused buildings, which preserves the fabric of our towns and cities; eliminating the unnecessary carbon emissions of new builds. Our team has transformed multiple disused structures over time, allowing us to achieve our goal of creating vibrant and energetic villages in city centre locations, in an environmentally conscious fashion. Sustainability will continue to grow as an influencing factor across the sector, while real estate that does not match environmental goals will become increasingly marginalised in 2024.