The emergence of the build to rent sector in Ireland will require some market adjustment if it is to remain a long-term viable alternative for investors and consumers.
The current housing crisis in Ireland has led investors, developers and home buyers to seek alternative solutions the supply issues challenging the market. This has led to a rapid rise in the market for Build to Rent (BTR) apartment schemes. These projects are purpose-built long-term rental units that are professionally owned and managed by an institution. This is an entirely new asset class in the property market of Ireland, with capital behind BTR developments often derived from institutional investors.
Demographics and Housing Trends
Demographic shifts and global trends have contributed to a changing property market in Ireland. Traditionally, rental tenants are students, young professionals saving for a mortgage or occupants of social housing. In Ireland, there has been a long tradition of owner-occupied homes, and home-building practices have reflected this arrangement. However, changing economic and social conditions have led to a decrease or delay in home buying among young adults resulting in a growing trend of long-term renters. While long term renting has been a common practice throughout Europe for decades, it is only now beginning to gain acceptance in Ireland.
Irish demographics reveal that 29.5% of the population is between the ages of 25 to 44, making it one of the youngest countries in the EU. This age group is the target population for the build to rentmodel as they are the most likely to be attracted to the idea of long-term renting and the amenities offered with BTR accommodations. The trend in apartment living has exploded in Ireland’s biggest cities. According to the consultant firm Linesight, renting rates have risen by 89% since 2002 in Dublin, making it the fastest growing housing sector nationally.
BTR Residential properties offer prospective tenants a different approach to the traditional landlord-tenant arrangement many are familiar with. Residents who live in these developments tend to pay higher rental rates in exchange for professionally managed premium properties with top quality design. BTR properties are usually located in high-demand preferred locations close to public transportation hubs. Included within their rental fees, tenants are provided access to facilities such as fitness centers, pools and lounge areas and offered amenities including storage and refuse collection. Customer experience is of the highest importance with BTR buildings and fostering a sense of community is essential to achieving high retention rates.
Build to Rent: Catering to Consumers and a Changing Market
Recently, Ireland has experienced a dramatic shortage of housing stock. A growing population and fair economic conditions have driven a demand for housing that the market has been unable to satisfy. According to David Grin, chairman of private equity firm Lotus Investment Group, “As construction companies fervently try to catch up with demand in a market facing a severe shortage of compliant rental accommodations in urban areas, BTR development projects can potentially help to alleviate the supply-demand imbalance.”
The Irish government has shown support for the BTR model in its planning and development policies, acknowledging it’s potential in the Rebuilding Ireland Action Plan for Housing and Homelessness. The Minister for Housing has advocated the use of build to rent housing developments by specifically instructing planning authorities and AnBordPleanalato prioritize necessary actions to accommodate the building model under a Specific Planning Policy Requirement under Section 28 of the Planning Act.
One of the most notable build to rent projects in Ireland is the Fernbank development by Irish Life Investment Managers in Churchtown. The complex is located on the site of the old Notre Dame School. The development will include 262 new rental units, with rental rates starting at €2,350 for a two-bedroom apartment.
The project stirred up public anger when those on the 1000 person waiting list to purchase an apartment in the development were told the entire complex would be sold to Irish Life as designated rental properties. The backlash over the project demonstrates how unfamiliar the public is with the BTR model, but it doesn’t appear to have deterred potential investors. The asset manager has announced that they expect to invest about €1 billion for investors over the next couple of years acquiring properties that will be rented to tenants.
BTR: A New Asset Class for Investors
With a growing private rented sector, developers are increasingly giving priority to those interested in purchasing partial or complete blocks of apartments, rather than several individual buyers. The Fernbank development is not a unique example of this trend. In the largest build to rent development to date in Ireland, the German investment fund Patrizia acquired 319 apartments at Honey Park in Dun Laoghaire in 2017. Other major residential investments following the BTR model have included Carysfort Capital’s €101m purchase of 120 apartments and two retail units at 6 Hanover Quay in the Dublin Docklands and IresReit’s €40m acquisition of 128 apartments at Hampton Wood in Finglas.
Build to rent developments have long been a successful asset class for investors in the United States and Europe. While the movement is relatively new to Ireland, it is rapidly growing in popularity among investors. Institutional investors are attracted to BTR investments in the residential rental market because they tend to be less vulnerable to economic cycles than traditional rental assets. Build to rent residential projects offer investors stability and long-term income potential in an uncertain marketplace. With the high demand for residential property in Ireland at the moment, build to rent projects provide an attractive alternative for developers, investors, and consumers.
As an investor in global and Irish real estate, David Grin provides a unique perspective on the build to rent asset class. According to Grin, “Investors have been increasingly interested in finding alternative ways to invest in real estate in an effort to generate better returns. Build to rent developments provide an opportunity to diversify an investment portfolio beyond the traditional office and retail sectors. This real estate niche is attractive to many because, if successful, it could provide consistent, sustainable returns for investors, while also solving a supply problem for the market. While build to rent schemes have proven successful in other regions, namely the US, it is yet to be seen if it there is long-term viability for the model in Ireland or if it is simply an emerging trend.”