The presence of institutional mutual funds in the Irish real estate market is the most important factor in housing construction right now, real estate seller Savills said.

In his latest market review, Savills said € 2.7 billion has been invested in Irish real estate to date in 2021.

That covers all aspects of the market – from residential and commercial buildings to industrial buildings.

In the private rental sector alone, however, 1.5 billion euros were spent this year; the majority of which comes from investment funds. In the PRS or build-to-rent sector, investors buy blocks of flats that enable large-scale construction activities before renting them out.

These investor funds are essentially the ability to move home construction in Ireland, Savills said.

“Without a sound investment base that gives the developers security, it is very unlikely that this construction will take place.”

According to Savills, € 757 million was invested in the private rental sector in the second quarter of this year alone, accounting for 51% of the total real estate investment market during that period. However, Savills sees the market rebalancing later in the year, with “significant” office and retail space to be purchased in the second half of the year.

warning

Over the past few weeks, both the central bank and ESRI have warned that it will likely take many years for the housing supply and demand gap to narrow.

It is expected that around 18,000 new houses will be built this year and 21,000 next year – still well below the rising annual demand, which is currently around 35,000 apartments.

The government’s proposals to increase rents in line with inflation also met with mixed responses.

Earlier this week, home builder Cairn Homes said it would complete 2,500 units this year, but admitted the lack of supply continues to be a problem.

Michael Stanley, CEO of Cairn, said the demand for new homes “has never been stronger” while the lack of supply has “never been more acute”.

Recently, Ireland’s other major publicly traded housing company, Glenveagh Properties, said the Irish property market needed institutional investors to fund large housing projects – especially large housing projects – and warned not to stop them entirely if further housing supply was excluded from the system.

Meanwhile, Savills said investor appetites were strongest in the industrial construction sector this year.

“The industrial sector has been relatively resilient to the effects of the pandemic and the rental market suffers from a lack of modern inventory and an exceptionally low vacancy rate.

“This has supported steady rental growth in the sector and investor demand has caused net initial yields to fall from 4.75% to 4.25% over the past 12 months,” said Brendan Delaney of Savills.