Perspectives

Real Estate Disruptors

Real estate planning and development in Q1 from an industry perspective

Events over the previous 12 months have been a catalyst for several disruptive trends in the real estate sector. Some of these trends will be short-term, while for others the effects will be more permanent. Before Covid-19, the construction industry was on an upward trajectory with substantial investment planned and cause for optimism. While this demand has not been quashed, activity has been delayed by the pandemic. This delay could result in projects that were previously marginally viable prior to the pandemic now rendered unviable. A report from Deloitte Ireland reviews the real estate planning and development in Q1 from an industry perspective.

As part of that, David Reddy, Associate Director in Deloitte’s Real Estate Financial Advisory team, considers the current residential landscape in Ireland, in an article which first appeared in the Construction Industry Federation's Construction Magazine.

Demands for different forms of living

In terms of the make up of the Irish Residential market, there has been an increasing shift in recent decades from the historical owner-occupier purchaser profile to the more “European” apartment rental market model. Due to the demands for different forms of living amongst a more dynamic demographic, this type of rental model which has become dominant in recent years in Dublin, is also now more prevalent in cities such Galway, Limerick and Cork.

However, predominantly as a result of the Covid-19 pandemic and more flexible working arrangements, the most recent research indicates an interesting and notable shift in planning applications for the delivery of housing units, rather than apartment developments in Q1 of this year, in comparison to the same period in 2020. This will be monitored closely once statistics are available for Q2 2021 and into the remainder of the year.

Furthermore, the underlying issue of the shift in purchaser/occupier demand has become more evident. Where purchasers previously sought an apartment or a two/three bedroom house, they will now require three/four bedroom houses in alternative locations; for example to include a study or home office. As people spend more time at home, this amenity space, to include gardens/open space, local neighbourhood facilities and amenities, become more critical. The availability of readily accessible transport routes must also be considered in the unit mix at the design stages, with different requirements for various demographic profiles.

These trends have been translated into the lodgement of a larger number of commencement notices for residential developments outside of Dublin, with lower density schemes more synonymous with these locations.

Rising costs impacting supply

Due to a shortage of supply most recently as a result of the disruption of supply chains following Brexit and the ongoing Covid-19 pandemic, one of the major issues that construction companies are now facing is rising costs in materials with no immediate slowdown in growth anticipated in the coming years. Contractors are also experiencing labour supply problems, with an increase in the demand for labour. This overall increase in demand for labour is further driving cost increases.

The resultant impact is that for a wide number of schemes, viability is becoming an issue - as costs rise, the margins become tighter. Our analysis reviewed schemes of 20 units and above, which indicates a huge deficit of housing in terms of delivery. Of the 34,000 units required to meet demand, approximately 15,000 units are on target for delivery in the full year of 2021 – there will be a knock-on effect on demand over the coming years. As the demand for housing increases, this is likely to drive up construction costs even more. The longer these projects are marginal, the less new stock that is likely to be developed which further increases the demand/supply gap.

In terms of units submitted, the number of planning applications was down 29% during the period Q1 2021 in comparison to Q1 2020. This is most likely a direct implication from the restrictions imposed over the first quarter of 2021. This trend is amplified further down the development timeline with granted schemes down 26% and commencement notices lodged down 44%.

We also note some broader factors impacting the planning system particularly the ongoing issues with the Strategic Housing Development (SHD) system, which is to be terminated and replaced in the coming months. The recent rise in the number of Judicial Reviews has resulted in many schemes being substantially delayed or quashed entirely in the courts. This slowdown in residential planning permissions will inevitably have an impact on housing supply over the next few years, compounding the impact from the construction shutdown caused by Covid-19.

Technology transformation is making an impact

Finally, whilst there are a variety of disruptors in the residential market, it is envisioned that technology will play an essential role in the planning, design, construction, and overall delivery of housing.

The entire construction process is becoming more efficient and technology is having an impact in this transformation, from site acquisition, surveys and planning strategy, to the design and disposal of schemes. The planning process is becoming more streamlined, developers and house builders have access to higher quality content, more detailed and complex schematics, and visuals from a design perspective. These technological advances will also have a positive impact on the sustainable design of housing. Designs are now digitised through BIM (Building Information Modelling) systems, which will allow for greater efficiencies in the use of buildings, including the ongoing management and maintenance, and their environmental impact and sustainable operation. Ultimately this will result in longer term value retention and cost savings for occupiers and end users.

The continued developments in technology will provide design efficiencies from a construction standpoint, allowing for modular builds offsite. In time, this will substantially improve speed of delivery and reduce costs. Albeit there are limitations at present in the Irish market until this process becomes more accessible and financially viable.

In a rapidly changing and dynamic residential market, it is fundamental that residential developers surround themselves with an adept and proficient design team.

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