Residential units in planning system drops 27% in Q2
The number of units in the residential planning system decreased by 27% between Q1 and Q2 2020, with commercial schemes down 25%, according to Deloitte Real Estate Advisory, which today published its planning and development outlook: an industry snapshot which includes the status of the residential and commercial real estate markets in Ireland and key market statistics from Q2 2020.
74 residential schemes (scheme size being greater than 20 units) were granted planning permission in Q2, compared with 95 in Q1; a total of eight office schemes were granted permission during the quarter, compared with 18 in Q1.
Vincent Sorohan, Director, Deloitte Real Estate Advisory said: “While the initial effects of the Covid-19 pandemic on the real estate sector are still being realised, the drop in the number of applications being granted permission during the quarter is most likely a direct implication of the Department of Housing making orders to add 56 days to the statutory time period for processing planning applications, with such orders needed as a measure to deal with the operational effects of the necessary public health measures implemented by the Government.
During Q2 there was an uptick in lodgments of new residential planning applications (99 applications were lodged, compared with 78 in Q1), while the quarter saw a decline in grants of planning (74 compared to 95 in Q1) and commencements (27 compared to 57) in the sector. Overall, there was a significant drop in the number of residential units being delivered with 22,615 units in the planning system in Q2, down from 30,829 in Q1.
“We anticipate that there will be a reduction in short-term demand within the residential rental market,” said Sorohan. “This is due to both an influx of supply of short-term rental stock due to lack of international travel, along with a decrease in rental demand due to the temporary relocation of tenants from Dublin City until at least the end of 2020.
“In the medium term, however we would expect residential rental demand to remain relatively stable. As the short-term softening eases, we expect that demand will return as stock is absorbed along with wider limitations in affordability of the sales market. All of this is likely to increase rental demand due to limited new stock coming to market in key locations.
“The affordability issue remains in the residential sales market. The economic deflation experienced will unfortunately place less certainty on household incomes, and cause lenders to be more cautious. Short term, there has been evidence of reasonably robust new home sales numbers, driven by pent-up demand by those predominantly with mortgage approval already in place and limited to no effect on income. However, we anticipate that as we move through the remainder of 2020 and into Q1 2021, new home sales will likely slow down as the overall economic effects of Covid-19 take hold.”
In the commercial sector, Q2 saw an increase in applications for planning permission lodged (12 compared with 6 in Q1) but a significant decline in planning permissions granted (8 compared to 18) and commencements (4 compared to 8).
“It is notable that there was an increase in the number of planning applications for office development across Ireland in Q2 2020, with a 100% jump in applications lodged per quarter,” said Sorohan. “This cannot be taken as an indicator of confidence in the office sector market, however, as it remains to be seen how many of these progress to commencements.
“Interestingly, the research indicates an increase in office development outside Dublin with 83% of all new applications located outside the capital. There was an equal split in this between Leinster and the Rest of Ireland, showing a growing interest in commercial development outside of Dublin.
“The office will continue to operate as a place to work: a social, collaborative and interactive site for staff. However, larger corporates will no doubt seek to establish more permanent remote working protocols and structures. This will ultimately reduce headcount in physical floor plates on a daily basis, as more flexible working practices for staff become the norm and companies seek to reduce what is a large operating expenditure, reducing floor space requirements. The office is likely to shift to a ‘destination’ workplace: required for improved efficiencies, client engagement, staff engagement, training of staff and an overall collaborative place to work.
“The resultant effect is that demand for office space could potentially decrease somewhat over the short to medium term, with occupiers looking to consolidate existing offices and reduce commercial footprints in order to manage their cost base effectively in tandem with adopting effective new work practices.
“However, a significant reduction in the requirement for office space in the longer term is unlikely. Whilst flexible and remote working are set to become more widespread, it is unlikely to shift the way the traditional office is perceived and could in fact strengthen the perception of the office space as a ‘place to work’ and ‘do business’.”