Housing demand primes Irish market for return of institutional investors, says report

However, it may be the end of the year before big funds return to the rental market here.

In a week when the Government estimated that €20bn of funding will be needed to meet a target of 50,000 homes a year, this report from estate agents Cushman & Wakefield says: “From an investor and developer perspective, the demographic and societal backdrop presents a strong tailwind, one which supports continued solid rental growth over the medium term.

“Furthermore, we are confident that a gradually more accommodative outlook for interest rates in Europe should kick-start a recovery in living capital values from the second half of 2024 onwards.”

However, Tom McCabe, of Cushman’s Irish division, said because Ireland lags other countries, it is likely to be the end of the year before Irish residential values stabilise for large investors and next year before they see recovery.

Since 2022, prices for multi-unit investments have fallen across a number of countries and this was reflected in a 100 basis points increase in Irish yields. But the report says this strengthens the case for investing in living assets, especially as interest rates ease.

The report, entitled ‘Unpacking Europe’s Living Revolution’, forecasts that Dublin will see the second-fastest growth of any European city between 2020 and 2040, when it will rise 14.1pc, or an extra 210,000 people. Oslo will see a faster 14.6pc, but only 106,000 extra people.

Other cities such as London, Madrid and Barcelona will see slower growth percentage-wise, but larger in actual numbers. It also expects the numbers of senior Irish citizens to grow by 50pc over the next 16 years, which would also be the fastest rate in Europe.

“From a real estate perspective, this greying of Europe points to a likely significant increase in demand for purpose-built healthcare and senior living accommodation,” it adds.

While it expects only modest scope for improvement in affordability to 2040 in Europe, it says, “home ownership rates are likely to stay lower in a historical context, a structural factor likely to support significant demand in the private rented and social and affordable housing segments”.

This greying of Europe points to a likely significant increase in demand for purpose-built healthcare and senior living accommodation

It says that according to the OECD, Irish affordability declined 50pc over the last 10 years based on a 10-year change in the house price-to-income ratio.

“From a demographic perspective, countries with a blend of growing populations and/or potential for further urbanisation offer the most attractive near-term risk-return trade-offs. Examples here include the UK and Ireland, the Benelux countries, Spain and Sweden,” it says.

The report also recognises that elevated interest rates and construction costs present viability hurdles to rapidly expanding housing output, adding: “While there is no short-term silver bullet to overcoming this, government support aimed at alleviating developers’ cost challenges together with more streamlined planning processes could make a material difference in our view.

“It is also important that governments resist the temptation to aggressively regulate living markets in response to rising rents, as we believe such moves are ultimately more likely to prolong Europe’s housing crises than solve them.”