Crunching the Numbers: How High Inflation and Rising Interest Rates Shake the Ireland Development La

The development land market in the greater Dublin area has experienced a significant decline in activity during the first half of 2023, according to the latest report from Lisney Commercial Real Estate. Sales volumes have plummeted, with just 26 sites sold for a combined total of €86 million, compared to sales of €279 million and €244 million in the first and second halves of 2022, respectively.

Crunching the Numbers: How High Inflation and Rising Interest Rates Shake the Ireland Development Land Market

While the decrease in sales can partially be attributed to elevated inflation and rising interest rates, Lisney notes that national and local planning policy discrepancies, as well as the chilling effect of judicial reviews on approved planning applications, have further hindered activity in the market.

Dublin accounted for 77% of the total turnover in the development land market during the first half of this year, followed by Co Kildare with 10%, Co Meath with 8%, and Co Wicklow with 5%. Out of the 26 sites sold in the first six months, 12 had planning permission, making up 7% of the total land sold by size (by acres) and 54% of the €86 million in total turnover.

The average deal size for development sites sold in the first half of 2023 stood at €3.4 million. This represents a significant decrease compared to the average deal size of €6.58 million in the second half of 2022 and €7.33 million in the first half of 2022. It is worth noting that only two deals in the first half of 2023 had values exceeding €10 million, accounting for 27.3% of the total turnover during that period.

In terms of transactions, the largest deal was the off-market sale of a five-acre site in south Dublin with planning permission for a 428-unit private rented sector (PRS) scheme for €13 million (€2.6 million per acre). The second largest deal involved the sale of Lucan House, the former Italian ambassador's residence, on 30 acres for approximately €10 million (€333,300 per acre). South Dublin County Council plans to extend St Catherine's Park with this acquisition.

Another notable transaction was the sale of a 0.83-acre site on North King Street in Dublin city centre for €7.35 million (€8.85 million per acre). This site, part of the Dublin 7 Portfolio, was initially priced at €8 million and offers a lucrative redevelopment opportunity with existing tenants in place. Additionally, a 3.16-acre site in Cabinteely, Dublin 18, with planning permission for 79 residential units, was sold for €6.1 million (€1.9 million per acre), along with a 0.6-acre site at Brookfield Road in Dublin 8 for €6 million (€9.7 million per acre). Other sales during the first half of the year ranged in value between €205,000 and €5.9 million.

Despite the current low levels of activity, Lisney reports that over €170 million worth of land was sale-agreed in the greater Dublin area by the end of June 2023. Of this, more than 70% pertained to Dublin, while the remainder was spread across Co Wicklow and Co Meath. The authors of the report anticipate that the overall value of sale-agreed land for the period may actually be higher, as one-third of activity has occurred off-market in recent times.

While only 20 sites with combined asking prices of €220 million were available for sale in the greater Dublin area at the end of June, Lisney expects this number to increase in the coming months due to growing pressure on investors and developers. The market is likely to witness receiverships and forced sales by funders, as well as developers selling due to higher development costs and challenges in progressing with building works. Furthermore, developers who acquired sites using secondary funding within the last 36 months may need to refinance, which could contribute to an increase in supply. As more planning applications progress through the system, it is expected that a greater number of ready-to-go sites will become available for sale.

In summary, the development land market in the greater Dublin area has experienced a decline in activity during the first half of 2023, primarily due to high inflation, rising interest rates, planning policy discrepancies, and the impact of judicial reviews. However, despite the current market conditions, there is still significant potential, as evidenced by the sale-agreed figures and the anticipation of increased supply in the near future.