Developer's change of direction on Sextant site steers us to causes of housing crisis

An iconic pub was knocked down in the Cork docklands to make space for a much-needed high-rise residential tower. Eoin English finds out why developers say that is no longer viable

The Sextant being demolished last August. Picture: Dan Linehan

IT was hard for some to swallow - the demolition of a historic quayside pub loved by many. Oozing charm and character, The Sextant and its striking facade had stood at the gateway to the city’s southern docks since 1877. 

The sadness felt as the demolition crews moved in last August was eased somewhat by the thought that, in its place, around 200 city-centre apartments would be built.

The JCD Group’s proposed 25-storey build-to-rent (BTR) project was seen as an important first step towards building a liveable city and a taste of what the city’s docklands could become.

So there’s no surprise that there was anger and outrage from those opposed to the demolition of the Sextant when JCD boss John Cleary confirmed last week that he was scrapping the approved residential tower, because it was not financially viable anymore, in favour of a 16-storey office block.

Cue criticism of the developer, and another debate about the city’s treatment of its history, heritage, and architecture, and of its future.

It’s easy to cast the developer as the greedy, bad guy in all of this — he knocked a much-loved pub and secretly wanted to build offices all along, or so the narrative went this week.

But the heritage debate is easy to address in relation to this site. Dealing with the future is trickier.

Let’s deal with the bad guy developer narrative first, by asking why a developer would spend in the order of €1m in the design of an apartment building, and embark on a planning process for it, only to expose himself to the expense of a new design and planning process for an office building after securing planning.

JCD has been one of the most prolific private development groups in Ireland over the last 15 years, developing, leasing, and selling more commercial assets to institutional investors than any other private property development business outside the capital since 2013.

It's easy for opponents of the Sextant's demolition to be angry at the developer when JCD boss John Cleary confirmed last week that he was scrapping the approved residential tower in favour of a 16-storey office block. But why would he spend €1m on the design and planning of an apartment building only to expose himself to the expense of a new design and planning process for an office building after securing planning? Picture: Larry Cummins

It has delivered close to 1m sq ft of grade-A office space in Cork since 2008, including at the City Gate campuses, at One Albert Quay, The Capitol, at 85 South Mall, and at Penrose Dock. Its work has included the sensitive restoration of a number of historically important buildings, including the Oyster Tavern to the rear of the Capitol development, and the restoration of the 1865 Italianate limestone building at 97 South Mall, which became home to Eventbrite.

All of its recent developments are fully occupied, and have helped to cement Cork’s reputation as a sought-after and credible location for large multinationals, with around 5,000 people employed in the buildings they’ve developed over the years.

So why did JCD opt for residential this time? Well, it was a logical move. A risk, sure, but that’s what developers do.

If you’re building offices for big multinationals, it makes sense to start building apartments for their workers too, doesn’t it?

JCD’s consultants looked at the figures, trends, and projections and felt there was an overwhelming case for the BTR residential model in Cork.

The tower was to be the first private apartment scheme of scale in the city since the 211-unit Elysian, with its 17-storey tower, was delivered in 2008, and the 200-unit Lancaster Gate complex a year before.

The only others of scale are the 61-unit Opera Lane in 2009 and the 29-unit Altus apartments in Sunday’s Well in 2006.

It’s been hotels, offices, and student apartments since.

The experts said the population of Cork was set to increase dramatically over the next 20 years and that 40% of this growth would be accommodated in the city centre on existing brownfield sites, effectively tripling the population of the core city centre area.

The 200-unit Lancaster Gate Development. It's been more than a decade since a private apartment scheme of this scale has been built in Cork City.

The growth in the city’s economy over the past five years was described as exceptional with employment in the tech sector increasing by more than 60%.

They said it was self-evident in the current scale of office development in Cork that to keep pace with new job creation levels, residential supply into the private sector is a vital need and a symbiotic relation has to be achieved for the long term.

It was in this context that JCD unveiled its plans for the Sextant site, located in an architectural conservation area.

The proposal includes the restoration and reopening of two protected structures on the same site — the two-storey former Cork, Blackrock, and Passage railway offices and the adjoining single-storey former ticket office — the railway offices as private rented office space with the renovated ticket office as a public bar and restaurant.

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An Taisce described the demolition of the Sextant as a loss of historic community fabric, and it triggered a debate about the city’s docklands heritage, and a wider conversation about the need for city living, for the creation of a 15-minute city, with sustainable neighbourhoods of people living close to where they work and socialise — a vision which has become even more important post-Covid.

The Sextant, albeit attractive and loved, was not a protected structure. It was rated as having regional importance on the National Inventory of Architectural Heritage, but there were a number of modifications to the fenestration and the interior in recent years and the building retained little of its original internal historic character.

Efforts were made in 2013 to include it in the Record of Protected Structures, but it was determined it did not warrant inclusion on the grounds that it was of insufficient merit.

'Regrettable but acceptable'

CORK City Council said the view of its conservation officer was that the demolition is regrettable but in principle is acceptable.

In her report, Erika Casey, senior planning inspector with An Bord Pleanála, noted that its heritage value had been significantly compromised by numerous alterations over the years, and that the context and setting of the building had irrevocably been altered.

She said: “The overall development strategy for the site brings many positive conservation impacts including the successful adaptation and reuse of the more significant railway complex buildings. The proposal will also have a major beneficial impact on the remaining industrial character of the architectural conservation area.”

After planning was granted, the developers made a record of the Sextant, including a detailed written account and a photographic record of the building, including its floor plan measurements, sections, elevations, and architectural details, for submission to the Irish Architectural Archive, before its demolition in August 2020.

The city waited for work on the tower to start. Then came last week’s news.

In the context of rising construction inflation, which has seen the cost of timber, steel, and cement aggregates rise, in some cases by up to 20%, JCD announced that following a detailed appraisal process and review by Deloitte, it was scrapping the residential tower.

The review found that even at existing high market rents, “the cost of delivering it is 15% higher than the anticipated value on completion, making the project completely unworkable”.

Property sources estimate that it could have cost between €110m and €115m to build it but that it would have been around €90m on completion.

“Try getting someone to finance a project with those figures — you’d be laughed out of the room,” one source said.

The review also found that the rents required to make the 201-apartment project financially viable would have had to rise an average of 21% from current levels, to as much as €2,800 per month for a two-bed unit, which JCD said “is not sustainable in the Cork market”.

Would a five- or six-storey residential building have been viable? The answer is no because lower buildings mean fewer apartments — around 50 to 60 per building — and because the cost of the site must be divided between the number of units, that would mean the site cost per unit would be four times higher than for a taller building.

What about a mixed-use building — a blend of offices and apartments?

That also presents difficulties because fire regulations require separate fire escape cores for residential and commercial uses. It means too much of the floor would be taken up by fire escapes.

It left JCD with two choices: Leave the site vacant or build an office block. So it has sought permission for a 16-storey office block. Another office block in the docklands.

The potential of the city’s docklands has long been recognised. It’s been touted as Ireland’s largest regeneration site with the potential to accommodate a population of 25,000, a workforce of 29,000 and a student population of up to 4,000 over the next 20 years.

The area is seeing extensive development, 82,475 sq m of office development is in construction or completed with over 12,000 sq m in the planning process.

JCD, and BAM and Clarendon, have developed offices and a hotel on the north docks. Planning has been granted for Ireland’s tallest building, the 34-storey, 240-bedroom tower hotel on the site of the former Port of Cork building on Custom House Quay, the Port of Cork is exploring the regeneration potential of its 153-acre brownfield site at Tivoli, and Glenveagh Properties has planning for 1,000 units in its Marina Quarter project on the former Ford site, home of Live at the Marquee.

The State threw its financial muscle behind the long-held ambition for the region in March when Taoiseach Micheál Martin announced €353m in the Urban Regeneration and Development Fund specifically for the area.

A view of Kennedy Quay junction with Victoria Road in Cork. The city’s docklands has long been recognised as Ireland’s largest regeneration site. Picture: Dan Linehan

But while offices and hotels are being built in the city, and while student apartment blocks are sprouting like mushrooms in the suburbs, these buildings deliver between six and eight en-suite rooms per unit, which in turn generates more revenue per square metre than standard apartments. Nobody is building residential apartments at the moment.

Cork Chamber flagged the apartment affordability and viability issue in 2019 just as confidence was building in the city’s docklands.

In a joint report with the Construction Industry Federation, it found the total delivery price of new apartments, taking account of the total cost of construction, site costs, financing costs, the developer’s margin/risk, and Vat is generally above the price a potential first-time buyer, working couple can afford.

The report showed the sales price of a two-bedroom apartment ranged at the time from €389,000 to €486,000, depending on location (city, docklands, suburbs) and would require a first-time buyer, working couple to have a combined income of €100,000 to €125,000 to afford the purchase price. It found a BTR scheme was unviable based on average rent of €1,600 for a one-bed, €2,200 for two-bed, and €2,600 for a three-bed apartment.

Unsustainable rents

FOR one specific scheme examined, the report said the developer would have to increase rent by around 15% to around €2,500 for a two-bed and €3,000 for a three-bed in order to make BTR viable.

These rents would absorb between 36% and 43% of the net income of a working couple on €120,000, it said.

In a market in which rents for a two-bed apartment in Cork City have already increased by almost 38% in the past five years, these rental levels would not be sustainable, it said.

It also showed that the direct construction costs accounted for an average of 74% of the total cost of a project, before taking account of the land cost or the developer’s margin.

One Albert Quay and Navigation Square, some of the 82,475 sq m of office development that is in construction or has been built in Cork City in recent years. Picture: Dan Linehan

Fees for professionals and technical experts accounted for between 5% and 12% of the total cost; development contributions ranged between 4% and 10% of the cost; and mitigating “abnormal site conditions” on one scheme accounted for 5% of the costs but this figure increased to around 17% when basement car parking was included.

The report concluded that the lack of supply of new apartments in the city is leading to a suboptimal situation, which was forcing potential buyers and renters to move outside the city to find accommodation, leading to the unintended consequences like increased commuting and congestion that modern cities are trying to avoid.

The report called for a range of targeted policies to kick-start the construction of affordable city apartments, including:

• The waiving of Section 48 development levies for city centre designated areas for up to two years; 
• Allocating a proportion of the local property tax in the form of a rebate to builders of apartments in city centres subject to meeting certain criteria; 
• And reducing the cost of Irish Water‘s charges for apartment developments as there is less infrastructure required for apartments than for housing on greenfield sites, yet charges are the same.

Others in the property business have in the last week suggested a further refinement of incentives to include shovel-ready schemes only, and for the incentives to be reviewed within two years.

Cork Chamber president Paula Cogan said simplistic narratives aim to divide the provision of public and private housing when it is obvious to everyone both are urgently required.

“The viability of apartments, whether new or above the shop must be addressed or our city and town centres will stagnate while our development exclusively sprawls. All of housing must be enabled or a lasting social and economic legacy will be created,” she said.

Chamber chief executive Conor Healy said their warnings from 2019 have now been borne out.

“Steps, such as the time-bound removal of Vat for high-density apartment construction in urban areas must be implemented, or our urban spaces will know no new living community, and we will remain exclusively dedicated to urban sprawl,” he said.

“Every form of home has a place in the national response to the housing crisis and apartment living must be a part of the evolution of city life.”