Some depth to the Northern Ireland property market at present say CBRE
Some encouraging economic and property market trends emerging
Belfast, 7th October 2013 – Commercial property consultants CBRE today released their latest Northern Ireland MarketView publication. According to the report, in addition to a number of encouraging signs emerging about the Northern Ireland economy over recent months, there has been a notable improvement in activity in the commercial property sector.
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According to Brian Lavery, Managing Director at CBRE in Belfast “Following a number of years of stagnation, there has been an improvement in transactional activity in the property sector in Northern Ireland during the first half of 2013, particularly in the investment sector. There is some depth to the market in Northern Ireland at the moment with considerable money chasing prime investment opportunities in the region and evidence of a resumption of bank funding for prime assets. A number of prime investment assets are currently under offer, mostly to UK funds and institutions, many of which have not invested in Northern Ireland in many years”.
Although the retail sector continues to face challenges, activity in other occupier sectors such as the office and industrial markets has also been encouraging and rental values in all sectors are stable at current levels. Prime Zone A rents in the retail sector are stable at approximately £110 per square foot on a Zone A basis having fallen by more than 50% from peak levels in 2007. In contrast, prime office rents in Belfast are stable at £12.50 per square foot, having fallen 17% from peak levels and are expected to increase from this point as the availability of Grade A accommodation continues to be eroded.
The hotel sector in Northern Ireland has performed well in the first half of 2013 boosted by events such as the G8 Summit being hosted in Fermanagh, the Derry Fleadh and the World Police and Fire Games which were held in Belfast in July. Hotels, bars and restaurants have had a very strong Summer season.
After a slow start to the year with only six office transactions totalling over 32,000 sq. ft. signed in Belfast during the first quarter of the year, a very strong second quarter resulting in total take-up of more than 206,000 sq. ft. being achieved in the first half of 2013 – a 59% increase on the volume of letting activity achieved in the city in the same period last year. In total, 24 office leasing transactions were signed in the city during H1 2013, although many of these were relatively small lettings with only four extending to more than 10,000 sq. ft. The most significant letting to sign in the first half of 2013 was the letting of some 90,000 sq. ft. to Land and Property Services at Lanyon Plaza in Belfast - one of the largest single office lettings in the city in a number of years. Belfast office rents remain very competitive relative to other competing cities in the UK and Ireland with more than 50% of a differential between prime office rents in Dublin and those prevailing in Belfast. Take-up of a further 67,180 sq. ft. was signed in Belfast in Q3 2013, bringing total take-up in the nine month period to almost 275,000 sq. ft.
Although there has been a decrease in the reliance on the public sector over the last number of years, as a result of the large letting at Lanyon Plaza, almost 50% of take-up in the office sector in the first nine months of 2013 was attributed to public sector tenants with consumer services and leisure tenants accounting for 10% of office take-up in the city in the period and financial services sector tenants accounting for a further 13% of letting activity in the period.
The letting of 3 floors at the Gateway building in the city is now agreed while a local law firm have agreed to lease more than 15,000 sq. ft. at Victoria House in the city. All of these lettings are further depleting the stock of Grade A accommodation in Belfast which in turn will put upward pressure on rental values in due course. Prime rents are currently stable at approximately £12.50 per sq. ft., which is significantly lower than that prevailing in other competing cities.
There are several large requirements for office accommodation in Belfast at the moment that will prove difficult to accommodate considering the shortage of Grade A stock in key locations. In this regard, the announcement that a planning application has recently been lodged by Titanic Quarter to develop a new 190,000 sq. ft. office development – the largest commercial development in the city since the start of the downturn – has been broadly welcomed.
Demand for freehold industrial properties remains strong with owner-occupiers attracted by the fact that capital values remain below replacement cost. There is limited industrial property available with prime sites selling quickly. Industrial rents remain stable but are likely to increase as vacancy in a number of schemes continues to decline.
Although retail rents in Northern Ireland have fallen by a much greater degree than other sectors from peak, they have now levelled out. However, there is limited likelihood of retail rents increasing in the short term with consumer activity remaining constrained despite some tentative improvement in economic conditions now starting to emerge. According to our research, there has been some improvement in retail vacancy rates in the last six months. The vacancy rate in Donegall Place in Q3 is 2.7%, down from 8.1% earlier this year while in Castle Lane, 20% of the retail units are vacant as at Q3 2013, compared to a vacancy rate of 25% six months ago. There is no vacancy on Arthur Street at present. Some transactions are currently underway including lettings on Donegall Place to Clinton Cards and American Candy which will further erode vacancy in this location.
The process of deleveraging appears to have kicked off in earnest over recent months with a notable increase in the volume of investment product being released for sale across Northern Ireland. While NAMA and the banks are beginning to release properties for sale in the region, a number of sales are also coming from consensual borrowers. Demand for property investments is being driven by pricing that is below replacement cost in many cases and the comparative gap between property yields and interest rates, which according to the Bank of England are going to remain fixed at 0.5% for a considerable period of time.
Yields in many sectors have contracted over recent months in reaction to strong demand for prime product in the region with UK institutions and local buyers active and particularly strong demand for supermarkets, out-of-town retail and office properties. Prime office yields in Northern Ireland are now in the region of 7.25% while prime retail yields are approximately 6.5%. NAMA have recently sold the Belfast headquarters of Invest Northern Ireland (INI) at Bedford Square in Belfast to the agency for a reported £17 million. Other transactions that are in progress include an Ulster Bank headquarters building in Belfast and an Ulster Bank satellite office at Danesfort. Other properties that have been offered for sale include a number of high quality retail and supermarket investments. There is considerable interest in Arthur House in Belfast, which has recently come available for sale guiding £5 million as part of the Danske Bank Project Arc portfolio.
Investment spend in Northern Ireland during the third quarter of 2013 was £66.5 million, bringing total investment spend in the first nine months of 2013 to £75.6 million.
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CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
In Ireland, with offices in Dublin and Belfast, CBRE is the country’s largest commercial real estate services company, now employing over 110 employees and offering a full range of property services including property sales and acquisitions, leasing and management, investment, corporate services, debt advisory, project management, consultancy, valuations and research. Please visit our website at www.cbre.ie or www.cbre.ie./ni