Land sales may be down in number, but they were up in value for 2018, writes Denis O’Donoghue.
The year just closing, was a busy one generally for development land, yet only 18 transactions actually completed in the Cork Metropolitan Area, which spans Blarney to the north, Carrigaline to the south, Carrigtwohill to the east, Ballincollig to the west and everything in between.
This represents a 42% reduction on 2017 transaction levels.
However, the total value of 2018 transactions reached just over €80 million representing a 45% increase on 2017.
In addition total acreages transacted in 2018 stood at 235 which is just shy of the 240 acres transacted in 2017.
So, fundamentally, the deals got bigger in terms of both size and value.
The largest transaction in value terms was the 11.35 acre former Ford site in Cork’s south Docklands with Glenveagh paying in the region of €15m.
On the neighbouring 18 acre Tedcastles site, the second largest development land sale of the year was recorded at around €12m in an off-market deal to the Comer brothers.
Combined, these Dockland sites have capacity to deliver high density apartment schemes with 3,000 units being well within the range of current planning guidelines.
The big question however, against the backdrop of the housing crisis, is ‘when will apartment development commence?’
This boils down to viability, and while the stimulus of market recovery has increased ordinary house prices to a point where it is again viable to build on suburban greenfield land, there is no tangible evidence at this point in time that the same is true of apartment development.
The Cork skyline lays testament to this fact with tower cranes currently standing over hotel, office and student accommodation developments.
Ultimately apartments are much more costly to build than standard housing and viability remains the fundamental supply side issue.
To this end the developers’ residual appraisal is ‘in the red’ and those who rely on it have sought the panacea of a VAT reduction in order to bring apartments into production.
Despite the ask, the Exchequer has not conceded the 13.5% VAT take which — for Cork — equates to zero VAT revenue and no supply, given the stalemate.
This stance however is at odds with the government’s own 115,000 person target population increase set down under the National Planning Framework 2040.
The stated aim for Cork is to accommodate this target population increase by sustainably recycling brownfield sites in the city core and tripling its population.
This in turn should breathe life into the beleaguered retail sector and add to the overall vitality of the city as a place to live and work.
As it stands, the 2018 guidance issued in March in relation to apartment design, and another paper issued in December in relation to build heights, will need time to see if such tinkering will bring about development on any meaningful scale.
On the height debate it seems a moot point for Cork, which up to 2018 had has the tallest apartment building in the republic (the Elysian, just now eclipsed by Kennedy Wilson’s Central Dock in Dublin), and Limerick which has the 15 storey Riverpoint building.
On this note it would seem that interventions to overcome the viability issue are answering to the needs of the Dublin market.
In terms of pure residential development land activity it was again the turn of Glenveagh who led the market in terms of size with the purchase of 13.8 acres at Eden in Blackrock.
This site which is serviced and with full planning permission for 140 residential units is ‘ready to go’.
This sale represents the wider developer view on planning where gaining it is time consuming, risky and potentially expensive.
Consequently there is a divergence in the value of sites with — and without — planning permission and the same goes for utility services.
It should also be noted that the ‘pillar’ banks are far less likely to finance development land without planning permission and this is also a value impactor as alternative funders are much more expensive.
Other residential development land sales that took place include Ballea Road in Carrigaline where approx nine acres with full planning permission was purchased by new Cork entrant Homeland Investments for around €4.5m and a UK based Irish investor checked into 104 acres at Ballyvolane for around €5m.
Outside of actual deal completions there is a significant weight of development land activity carrying into 2019, the largest being 43 acres in Maryborough Ridge which was guided on the market in September at just over €20m while others include the Grafton Group’s 15.9 acres at Ardrostig in Bishopstown, the 7.24 acre Johnson and Perrott site on the South Douglas Road and 32 acres close to Shannon Park in Carrigaline.
CBRE are in the process of collating and reviewing the status of all zoned residential development land in the Cork metropolitan area at present; our preliminary estimates put the figure at around 5,100 acres of zoned land with about 400 acres having full planning permission for 5,700 residential units.
The largest area of supply is Ballincollig with just over 500 acres, with current planning in place for more than 600 units on 110 acres.
The largest of these is Heathfield, where development commenced on a 210 unit scheme by Murnane & O’Shea in mid 2018 with the first release due in early 2019.
The largest planning grant however is O’Flynn Construction’s 75 acre site in Ballinglanna, Glanmire which received permission for 608 residential units via the An Bord Pleanála fast track route and it has also commenced construction.
Overall, sentiment amongst developers could be described at cautiously optimistic.
While there is a well documented shortage of supply, unlike the peak in 2007, there are no queues from first time buyers and the market is price sensitive.
This is mainly due to the Central Bank’s macro prudential rules which have made it much tougher to get a mortgage and it is well documented that Irish mortgage interest rates are amongst the highest in Europe, making them less affordable.
Despite this, rents are generally now more expensive than mortgage repayments and if left unchecked against the background of our aging population, the long term consequences are likely to be painful for both the renter and the taxpayer.
Property development remains a risky business: while on the house pricing side there is now arguably much more oversight in terms of house price and rent controls, transparency via the Property Price Register and the availability of more data to make better informed decisions, the latest challenge for developers is being mounted from the build cost lines.
With a scarcity of qualified professionals and trades people available to actually build, it is leading to escalating build cost inflation.
Anecdotally developers say that they are in some instances being quoted up to 30% more now from various trades than they were 12 months ago as more projects go on site and the labour pool diminishes.
To conclude, 2018 was the year of bigger, more concentrated deals and the current carryover to 2019 paints bright prospects for the year ahead.
Apartment development which has the potential for quick and efficient high-density delivery is expensive and needs some form of intervention if we are to see any meaningful supply.
House prices and sales are on a steady trajectory and with this land demand is finding its own form with ‘ready to go’ opportunities beyond the travails of the planning system being the order of the day.
The latest challenge for the development sector is build-cost inflation which seems to be where the inflationary circle is now trying to rotate.
On this latter point and to sum up the current status of development, maybe it’s the festive season or maybe it’s the lessons of the recent past but the title of legendary rock band The Who’s 1971 classic ‘Won’t Get Fooled Again’ somehow springs to mind.
Denis O’Donoghue is a Director and Head of Agency with CBRE Cork.