Statement by Sherry FitzGerald Commercial Research
Monday, July 17th, 2023
Sherry FitzGerald, Ireland’s largest estate agent, reported today (Monday, July 17th, 2023) that the first half of 2023 saw a marked decline in transaction activity in the development land market with the total value of land sold for development purposes falling to a record low for this period to reach approximately €134 million. This represents a significant 65% reduction on the corresponding period in 2022, highlighting various challenges facing the development land market at present.
According to Jean Behan, Senior Economist, Sherry FitzGerald Research; “Rising borrowing costs and persistently strong construction cost inflation are impeding activity, and these are further exacerbated by ongoing delays in the planning system. This is impacting the viability of development projects and making it more difficult for developers to secure finance.”
This is further illustrated by the lack of large transactions during the six-month period. Notably, in contrast to previous years, there were no transactions exceeding €15 million in value. The largest proportion, 56%, were in the €1 million to €5 million cohort, while a further 29% of transactions ranged between €5 million and €15 million in value.
Interestingly the regional centres of Cork and Galway each accounted for considerably large shares of development land turnover during the period at 15% and 14% respectively. This reflects a number of large transactions in these locations. Just over half of development land spend, 52%, was located in the Dublin region, markedly lower than in previous years.
Residential land accounted for 58% of sales turnover in the first half of the year, while the proportion comprising land for commercial or industrial use was much lower than that seen in the past two years at only 14%. That said, a further 25% consisted of land with mixed use potential, including a number of large landbanks that could potentially be used for either residential or commercial development.
Looking to the remainder of the year, activity levels are likely to remain subdued amid the current interest rate environment. Although the government has taken various steps to rectify problems in the planning system, it will take time to clear the backlog and to restore confidence in the system. This has particularly curtailed the sale of land for residential development, with continued uncertainty over end-costs making some developments unviable.
Furthermore, in the residential sector, demand has somewhat pivoted away from high density developments more recently designated for the PRS sector, and towards lower density and lower risk build to sell schemes. That said it is anticipated that some of the accommodation planned for PRS will now be absorbed by the LDA through Project Tosaigh or associated LDA forward funding or forward purchase models, to provide affordable and cost rental accommodation.
Within the commercial sector, the office market is currently undergoing a transitionary phase which is impacting demand for space. However, demand for modern energy efficient accommodation in both the office and industrial markets remains strong as occupiers become increasingly focused on meeting ESG targets, while the supply of such space is limited. Therefore, landlords will have to assess the feasibility of retrofitting space and maintaining its use, or completely renovating the space with a potential change to alternative use such as residential. This is likely to result in a greater share of more obsolete buildings being released to the market for redevelopment.
In the industrial market, design and build development has been a key feature of the market over the last number of years reflecting a mismatch between demand requirements and the supply of stock. This is likely to continue in the medium term, as demand for accommodation is elevated by the growth of e-commerce in recent years and as the building specifications required by these occupiers increases to enable them to meet their ESG objectives.
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For any further information, please contact:
Jill O’Neill
PR Director
Sherry FitzGerald Group
Ph: 01 2376 500 / 086 252 3277
