What is Sustaining Construction Activity in Ireland?

July 6, 2021
Makayla Santino

Savills, a property seller, has stated that the fundamental factor sustaining residential construction is institutional investment funds coming into the Irish property market. Throughout 2021, nearly €2.7 billion were recorded as investments in the Irish property market. This figure encompasses elements of the market ranging from residential to industrial property. 

When looking more specifically at only the private rented sector, there has been about €1.5 billion spent, most of the money coming from investment funds. The PRS, build-to-rent, sector identifies when investors buy out apartment blocks where extensive construction projects will take place. Then, it rents these properties out. In this way, capital from the investors is the number one driver of residential construction in Ireland.

Savills goes on to announce the private rented sector received about €757 million in just the second quarter of 2021. For the period, this figure makes up around 51 percent of the aggregate property investments. Despite this high proportion of the market, Sevills predicts that the figure will balance itself out in the latter half of the year. It is expected that many office and retail spaces will see increased demand as the year goes on. 

Looking at the housing market more broadly, the ESRI and Central Bank have both expressed warnings that it may take many years for the rift to narrow between supply and demand. Estimates predict that about 18,000 houses will be built this year and then 21,000 in the next. However, these numbers are significantly below the ever-increasing yearly demand that is currently at around 35,000 new homes.

Another controversial topic comes from government ideas for rent levels to increase alongside inflation. One housebuilding company, Cairn Homes, announced that it would finish 2,500 housing units within the year, but also acknowledged that there is a problematic lack of supply. 

Another prominent housebuilding business in Ireland is Glenveagh Properties. The company has stated that institutional investors will be necessary within Ireland’s home market to provide funding for large housing plans, especially bigger apartment developments. Further, it advised that halting the funds and plans completely would prevent further housing supply from entering the system.

In terms of investor demand, Sevills has reported that it has been the highest for the industrial building sector witnessed this year. The sector has remained tough in light of the pandemic. Additionally, the occupier market is witnessing deficiency in modern stock and vacancy rates. 

All of the above factors can aid a stable growth throughout the sector. Demand coming from investors has induced first yields to go from 4.75 percent to 4.25 percent over the last year.

 

 

Reference:

Percival Geoff. “Investment Funds the Main Fuel to Construction Activity, Say Savills.” Irish Examiner, 2 July 2021, https://www.irishexaminer.com/business/economy/arid-40327892.html.

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