Hines, Patrizia And Kennedy Wilson On What Ireland's Build-To-Rent Sector Should Look Like
The Build-To-Rent sector has recently taken off in Ireland with many citing it as a way to help ease the housing crisis.
Ireland has traditionally been a country which places great value on owning a house with home-ownership reaching 80.1% and just 8% of households renting at its peak in 1991.
However in recent years that attitude has begun to shift, as mortgage rules and rising prices made it harder to get on the property ladder. Combined with demographic trends as well as the housing shortage there is huge demand for rental accommodation in Ireland, particularly in the capital.
Now that the BTR is becoming a viable option in Ireland's residential market what will Ireland take from other successful BTR markets in order to to replicate the success here? BTR experts from Patrizia, Hines and Kennedy Wilson spoke about the trends that dominate other BTR models.
According to Kennedy Wilson Chief Operating Officer Peter Collins the institutional private rented sector in Ireland was something of an accident born from the global financial crisis.
Entire apartments blocks could not be sold and they entered the rental sector through sales by receivers. “This gave the opportunity for Hines, IRES, ourselves and others to come into the market to create a platform and the next stage of that is to build, because there is no built stock left.”
Hines Managing Director Brian Moran believes it is important to distinguish between the European and U.S. BTR models as they originated differently. “The U.S. is a pure market-led BTR model," he said. "Back in 1985, 2% of the investable stock for real estate investors was multifamily. It’s now about 20-25% of the overall investment stock so that product has really perfected itself and become a much more sophisticated product.”
“In Europe BTR has often been social housing led or more co-operative led and it hasn’t been as sophisticated as the U.S. in terms of the product for the market. In Europe it was often led by councils or cities to get the balance between rental stock and private stock."
Moran believes that the government’s decision to keep a large portion of land for rental stock is positive for the market, helping to avoid further rental spikes and seeing Ireland moving closer to the U.S. model where BTR is a big part of the country's housing market.
Patrizia U.K. & Ireland Residential Investment Executive Antonio Marin-Bataller believes there are many things that Ireland could learn from BTR sectors in other countries.
“At Patrizia we are very Germanic in how we operate and in Germany it’s all about the quality of the apartment," he said. "I am a bit subjective about the American model where they put in a lot of amenities.
“Ultimately, the way we view it is, you have to generate the best income and that’s gonna be by playing with the unit mix, so you want to have more one beds than two beds.”
While he is unsure where European renters want as many amenities in BTR schemes as their American cousins, efficient design for operational purposes to maximise revenue is an area that Marin-Bataller thinks the U.S. does very well and which Ireland would benefit from. Examples include the integration of technology.
“What we found with the amenities in the U.K. with a lot of BTR schemes that we have done is that it becomes extremely expensive to build and a lot of investors cannot underwrite the premium of those amenities.
“Investors can’t go to their investment committees and ask for more money for amenities. It just doesn’t work,” Marin-Bataller added.
Sticking to residential fundamentals will be key for Ireland’s BTR market Marin-Bataller said. He also advised keeping an eye on the future, when apartment blocks could be broken up and sold.
“Keep the unit sizes in good quality, play with the unit mix and also remember that in America there is a big movement which is the condo converters.
"What they are doing is when the life cycle of one of these assets is reached in about 25 years they tend to buy it, break it up and privatise it and so you always have to think of the dual purpose of these buildings; how it’s designed, how can we break it up, is it going to work if we break it up or not because otherwise you’ll be leaving a lot of value on the table.”
He recommend that the European model with “tokens of the U.S. model” would work best for Ireland.
Collins pointed out that it is essential to listen to what the tenants want as well. “About 60% of our tenants are coming from overseas and from engaging with them, we know that a big challenge coming from another country, working and getting to know people is," he said.
"I think they appreciate, particularly those who have already experienced PRS in other markets like the U.S., a more engaged community that you build around your residential amenities, like your on-site management and all of the other conveniences.”
Marin-Bataller made the point that in co-working companies 75% of companies that are tenants end up collaborating in some way and that it was a major reason why people want to continue working there. The same was true on the level of the individual in BTR.
With more than €5B in capital now targeting Ireland as the next BTR market and considering the urgent need in the market for BTR schemes to be built and developed quickly there is no doubt that BTR will become a pillar of Ireland's resi market.
Ultimately Ireland will, through tiral and error, develop its own model, with perhaps a belnd of German efficiency and U.S. amenity providing the model to follow.