The growing appeal of PRS and the associated costs - an Irish perspective

Linesight Director, Stephen Ashe, examines the growing appeal of PRS in Ireland, and the associated current construction costs.

The strength of the case for PRS, otherwise known as build-to-rent (BTR), is compelling. As a model, it allows a developer to commence construction on a large scale, rather than build out a site on a phase-by-phase basis, whereby the commencement of each phase is reliant on the sale of units in the previous phase.

Thanks to the promise of near full occupancy levels in the Irish market, the PRS model is set to attract significant support from institutional investors, such as pension funds, in the future. This is supported by the fact that the rental incomes derived from letting residential units in large numbers provide steady returns over many years, and perhaps most importantly, through the peaks and troughs of economic cycles.

Linesight has provided consultancy services for numerous PRS schemes in the more established markets in Europe and the US, and is currently providing consultancy services on a large number of schemes at various stages. Looking specifically at Ireland, it is seen as a major growth area with an estimated €3 billion of institutional capital currently available.

What is PRS?

PRS is a concept derived predominantly from the US and Germany. It involves the delivery of purpose-built, long-term, residential rental accommodation. As the model is focused on long-term rental, the schemes are designed to a high standard, and located in close proximity to good transport links. A key aspect of PRS is the on-site amenity space provided, which can include facilities such as resident lounges, gyms, entertainment rooms etc. Another distinct benefit of PRS is the high-quality, on-site management, to deal with any resident issues and on-going maintenance.

From an investment perspective, the sector offers stable long-term income potential. This is in addition to reducing the current undersupply of housing in the Irish market.

New apartment design standards – December 2017

With the recent changes to the ‘Sustainable Urban Housing Design Standards for New Apartments’, PRS schemes now face an amended set of requirements:

• Potentially no car parking provision required, on the basis of the scheme being centrally located or in close proximity to public transport networks
• Flexibility on the minimum storage and private amenity requirements, subject to the provision of compensatory communal support facilities
• No restriction on the number of apartments per core
• Adjusted minimum apartment sizes

The recent change to car parking provisions is significant, in terms of having the potential to dramatically lower construction costs and ground risk.

Costs

Optimization in terms of design, density, the number of floors, car parking provision, amenity space allocation and specification are central elements in the delivery of cost effective schemes.

There are a number of critical components to consider when compiling costs:

• Part V of the ‘Planning and Development Act 2000’ is applicable. As such, 10% of the units are to be provided as social and affordable housing to the Local Authority.
• Status of infrastructure - is it a serviced site, and if so, to what level?
• Specification – the design must be such that it is efficient and durable for the long term. Life cycle costing should be undertaken on major components, such as the mechanical and electrical installation and floor finishes.
• Ground conditions.
• Demolition and decontamination.
• Car parking provision underground and over-ground .
• Extent of plant space at basement level/central plant locations.
• The units are generally provided fully fitted out, including furniture and blinds. Sinking funds need to be put in place for furniture replacement, and wear and tear.
• Property management fees are high due to the service offering.
• In general, the optional elimination of internal lobbies in the units makes for open-plan living and increases the density of the scheme, thereby delivering more units. The omission of lobbies may result in the requirement for a sprinkler system.
• BER and NZEB requirements need to be factored into the costs.
• Fire requirements - vary greatly, depending on the type, mix, height etc.
• As the construction industry continues to recover, tender prices are rising steadily. The increase in tender prices, which we expect to continue, emphasizes the importance of providing for future construction inflation in feasibility studies and cost plans.
• High volume and repetition makes modular construction very efficient.

Build cost ranges (Q2 2018 rates)