Threefold increase in residential development commencements year-on-year – Deloitte report

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Threefold increase in residential development commencements year-on-year – Deloitte report

Commencements on residential development schemes in Ireland in Q2 2021 more than doubled compared to Q1 2021 and increased threefold compared to Q2 2020, according to a report from Deloitte.

Commenting on the report John Doddy, Partner, Deloitte Real Estate Advisory said: “The last quarter has provided a much-needed boost to the construction industry in Ireland. The large increase in residential commencements is no doubt due to the limited activity resulting from Covid-19 restrictions over the last year and a half. It is in stark contrast to pre-pandemic commencement levels, representing on average a 30% increase on the 2019 quarterly average. This is a welcome return to above-average, pre-pandemic activity; however, it’s likely somewhat inflated due to the number of sites that were ready to go once construction reopened in May. This will be monitored closely into Q3, which may provide a better indication of how the industry is set to recover.
“From a commercial perspective, there has been a notable reduction in the supply of new office stock coming on stream through applications and commencements. This reduction in applications and commencements of new office development will have a knock-on effect on supply over both the short and medium term, due to the illiquidity in delivery of stock to market. While there remains a focus on Dublin for office development, there is now a 50% split between ‘Dublin/Leinster’ and the ‘Rest of Ireland’, which signals growing confidence in the regional occupational office market.”

Residential market

“All construction resumed in Ireland on 4 May 2021 and as a result, the second quarter of this year has witnessed increased activity for the residential sector,” said Doddy. “The pent-up demand that was evident in the market has resulted in the highest number of commencements for schemes with 20+ units in a single quarter since the introduction of the new e-Building Control Management System in 2014. Applications lodged in Q2 2021 increased by 61% on the same period in 2020; we consider this a direct result of the reopening of building sites and pent-up demand evident on a national basis.”

The level of applications granted increased by 38% between Q2 2020 and Q2 2021, whilst the level of commencement notices lodged increased by a significant 303% between Q2 2020 and Q2 2021. “This is a result of increased market activity and pent-up demand, with both owner-occupiers and investment funds seeking to acquire a much-sought-after end product which is in limited supply,” said Doddy.

Of the 159 new residential scheme planning applications submitted in Q2 2021, 24% were in Dublin, 33% in the rest of Leinster, with the remaining 43% in the rest of Ireland.
Of the 102 residential schemes granted planning permission in Q2 2021, 38% were in Dublin, 30% in the rest of Leinster, with the remaining 32% in the rest of Ireland.

Of the 108 residential schemes that had commencement notices lodged in Q2 2021, 33% were in Dublin, up from 12% in Q2 2020. 35% were in the rest of Leinster, and 32% in the rest of Ireland.

The mix of unit types subject to commencement in Q2 2021 has continued in the same vein as Q1 2021, with developers favouring the construction of houses as opposed to apartments. Q2 2021 saw a total of 6,795 housing units and 2,352 apartment units subject to commencement notices across Ireland. A further unclassified 818 units within mixed development schemes – most of which are apartment units – were also commenced in this period.

Timelines for securing planning permission remain an issue for developers, with the average time for residential schemes to secure planning permission across Ireland being 208 days for schemes that obtained planning permission in Q2 of 2021. This has increased from 193 days in Q2 2020.

Office market

Despite the significant uncertainty surrounding the office market over the past 12-18 months, the appetite for office development remained steady in Q2 2021, with 5 developments commencing, compared to 4 in Q1 2021, 4 in Q2 2020 and 8 in Q1 2020.
While there was a decrease in the number of schemes granted planning permission in Q2 2021 (10, compared to 12 in Q1 2021), there was an increase in the number of applications lodged during the quarter (8, compared to 5 in Q1 2021). “This indicates some increased return to confidence in the sector,” said Doddy.

Year-on-year there has been an overall decrease in applications lodged (13 schemes in H1 2021 compared to 18 schemes in H1 2020).

The report noted a shift in focus on office development to locations predominantly outside of Dublin. Whilst 8 of the 10 schemes with planning permissions granted in Q2 2021 were in Dublin, only 20% of schemes commenced in Ireland during the quarter were in Dublin, with 20% in the rest of Leinster and 60% in the rest of Ireland.

Similarly, 4 out of the 8 applications for office developments lodged were outside of Dublin, and indeed Leinster, with just 2 new applications lodged for office schemes in the Dublin area.

“This is likely stemming from an increased demand for more remote working patterns, and sustained increased rental levels in Dublin, driving a more regional focus,” said Doddy.

“Another point of observation on the office market is the renewed focus on environmental impact. With occupiers becoming more environmentally conscious and considering their carbon footprint, more sustainable and ‘green’ buildings will become the norm, and indeed a requirement for larger corporates and multinationals. For some, this may require new office space, where the retrofitting of existing buildings may simply not meet requirements. It is likely that this will have a fundamental impact on occupational requirements.

“Overall, it has been an encouraging three months for the industry, with a large number of commencements on the residential side and the introduction of the Housing for All Plan. It is an ambitious plan that does not exclude any part of the industry and recognises that all asset classes and structures are required to solve the housing crisis. As with every plan, there are areas that will need further analysis and consideration, which will be monitored closely in the coming months.”

 

Article Published: 07/10/2021