Investment funds the main fuel to construction activity, says Savills

Some €1.5bn has been spent on rental property this year.

The presence of institutional investment funds in the Irish property market is the main ingredient fueling residential construction activity at the moment, property seller Savills has said.

In its latest review of the market, Savills said a near-record €2.7bn has been invested in Irish property so far during 2021.

That covers every aspect of the market — from residential and commercial, to industrial buildings.

However, in the private rented sector, alone, €1.5bn has been spent this year; with the vast majority of that coming from investment funds. The PRS — or build-to-rent — sector sees investors buy apartment blocks, allowing for large-scale construction activity, before renting them out.

These investor funds are, essentially, enabling residential construction to continue at pace in Ireland, Savills said.

“Without a healthy investment base giving certainty for developers, it is highly unlikely that this construction would be happening.” 

Savills said €757m was invested in the private rented sector in the second quarter of this year, alone, making up 51% of the total property investment market in the period. However, Savills sees the market balancing out later in the year, with the prospect of “significant” office and retail spaces set to be purchased in the second half.

Warning

In the last couple of weeks, both the Central Bank and the ESRI have warned that it is likely to be many years before the gap between housing supply and demand narrows. 

Around 18,000 new houses are expected to be built this year, with that figure rising to 21,000 next year — still well short of a rising yearly demand figure, currently sitting at about 35,000 homes.

The Government’s proposals to have rent levels rise in accordance with inflation has also been met with mixed reaction. 

Earlier this week, housebuilder Cairn Homes said it would complete 2,500 units this year but admitted lack of supply remains an issue.

Cairn’s chief executive Michael Stanley said demand for new homes “has never been stronger”, while the lack of supply “has never been more acute”.

Recently, Ireland’s other major stock market listed housebuilding firm Glenveagh Properties said the Irish property market needs institutional investors to fund big housing schemes — particularly large apartment developments — and warned stopping them fully could lock further housing supply out of the system.

Meanwhile, Savills said investor appetite has been strongest in the industrial building sector this year.

“The industrial sector has been relatively resilient to the effects of the pandemic and the occupier market is suffering from a dearth of modern stock and an exceptionally low vacancy rate. 

"This has provided support for steady rental growth in the sector and investor demand has caused net initial yields to tighten from 4.75% to 4.25% over the past 12 months,” said Savills’ Brendan Delaney.