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April 18, 2018

High demand for private rented sector (PRS) housing in Ireland looks set to fuel further investment in the country’s real estate market in 2018.

Since the global financial crisis, much of Ireland’s housebuilding activity has ground to a halt, resulting in a widespread housing shortage in its cities.

Ireland’s population is expected to increase by one million by the end of 2040 with an additional 500,000 homes needed to accommodate this growth, according to the Government’s Project Ireland 2040.

Max Reilly, Director – Investment at JLL Ireland, says the housing shortage is likely to put investor demand for PRS and other residential real estate opportunities on par with demand for offices this year.

“The big gap between housing demand and supply is set to greatly boost the residential market this year,” he says. “At the same time, there are limited investment opportunities in the office sector which means competition for prime assets is tough. PRS is an attractive alternative. There is strong rental growth and although the Government has introduced rent control measures, if based off current market rents it allows for a healthy 4 percent per-annum growth.”

Putting Ireland on the map
Demand for housing is being driven, in part, by large global corporations such as Facebook, JP Morgan and Microsoft expanding in Dublin.

“As more international companies move into Ireland there will be more staff who require housing, so there is a good pipeline of demand in the PRS space,” says Reilly.

As well as increasing demand for housing, the entry of big global occupiers is attracting the interest of overseas investors, especially for commercial. Indeed, most of the largest real estate deals in Ireland have been acquired by foreign capital, with overall overseas investment totaling €586 million in the first quarter of the year – more than half of the total investment.

Traditionally interest has come from France and Germany but, more recently, Ireland has caught the eye of investors from the Middle East and South Korea. Reilly says that Dublin is driving the demand, calling it “a destination for international capital.”

“We are seeing a lot of interest in office and PRS opportunities from overseas investors,” he adds.

Another solid year
Overall, JLL expects Ireland’s real estate investment volumes in 2018 to be similar to those seen in 2017, coming in at over €2 billion. Reilly says that while there will be more transactions in the PRS sector, the pure commercial sector is still expected to remain strong with additional focus on logistics.

In the first quarter of 2018, over €930 million of property was traded across 51 transactions. While this was around a 200 percent increase on the volumes transacted in the same period in 2017, much of the increase was driven by the completion of several high-value transactions that were agreed in the final months of 2017.

The largest deal was the sale of Heuston South Quarter, an office development in Dublin 8, which was sold by Northwood to an overseas investor for €175 million. This was followed by Dublin Landings in Dublin 1 – an office investment, leased to the Irish Government, which was sold by Ballymore / Oxley to Truvia for €164 million. Other notable transactions include the sale of The Square Shopping Centre in Dublin for €250 million, where JLL acted for the vendors after the sale.

Outside of Dublin, Cork is also attracting some investor interest. In the first quarter, Cork was home to Ireland’s fourth-largest transaction – the sale of Elysium, a PRS investment, by Blackstone to Kennedy Wilson for €90 million. Overall, the city attracted €103 million of investment over four transactions.

Cork, like Dublin, is also facing a housing shortage, although Reilly suggests it is a less attractive investment destination than Dublin because of its smaller population. Cork has 250,000 residents compared with Dublin’s 1.5 million.

“Most international investors in Cork will face the problem of liquidity, so it has limitations in competing with Dublin, although offers better returns,” Reilly adds.

Brexit conundrum
One of the biggest challenges facing Ireland in the second half of 2018 is Brexit. Although some commentators think demand for housing – and therefore property prices – could increase as finance firms depart Britain for Ireland, the outcome is still uncertain.

“Despite these uncertainties, we expect strong demand for offices, logistics and housing to reinforce investor appetite for the remainder of the year,” says Reilly.

Click to read about how Europe is making a comeback for real estate investors

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Max Reilly

Director - Investment at JLL Ireland

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