Real Estate Partner at John McKee Solicitors, Gerard Small, takes a look at the current state of the Northern Ireland commercial property market.
“Fortunately the last 2-3 years have seen significant recovery in certain areas and types of property such as retail and office in Belfast.
Retailers are now returning encouraged by the Reval 2015 rates reductions. Voids in Donegall Place have been filled (DW Sports, Zara and Gap) and LSH report new lettings of 50,000 sq. ft. at Victoria Square in the last 2 years with an additional 30,000 sq. ft. under offer or in legals. Recent notable requirements include Five Guys and Oliver Bonas.
Likewise office occupiers are coming into Belfast again with rents more competitive than Dublin and most other UK locations (Grade A currently £15.50 per sq. ft. and this may rise further given shortening supply in the Central Business District).
However, there is a widening gap between Prime Zone A retail in Belfast and high street shops and shopping centre units in regional towns where rents are still depressed and large numbers of unoccupied units remain (NI retail vacancy overall May – July 17.3% vs. UK average in April of 10.2%). There is an equivalent gulf between Grade A office accommodation in Belfast City Centre and Grade B or less elsewhere.
Investment activity in Northern Ireland has continued apace with CBRE reporting over £140 million transacted in the first half of 2015 and expectations of an even stronger second half.
Loan sales by local banks to US investment firms and NAMA’s disposal of non-loan sale assets have resulted in the release of large numbers of properties into the market and a wave of sales of significant property assets (Windsor House, The Linen Green, Dungannon). These have proved attractive to buyers given the differential between prime yields available here (based on current price levels) and those in other UK regional cities, with potential for further rental growth. This has stimulated a return to the market by London institutional buyers and other smaller investors, locally and further afield.
In Belfast, existing offices (Causeway Exchange) and sites for redevelopment as hotels (Windsor House) or office space (Clarendon House) have attracted significant money. Outside Belfast, shopping centres have been the focus of activity (most recently Erneside, Enniskillen) but otherwise investment and development in commercial property are still constrained.
A number of significant challenges for the property sector lie ahead. Supply of Grade A office accommodation in Belfast City Centre will require redevelopment or refurbishment of existing sites (several schemes have already been announced and Invest NI have promised support to developers).
Planning uncertainty continues with the judicial review of the Ministerial decision to adopt the Belfast Metropolitan Area Plan. This goes to the heart of future retail in Northern Ireland – whether John Lewis or an equivalent comes here and, if so, where, and how the competing interests of Belfast, regional town centres and out-of-town developments will be balanced.
Quality retail capacity in Belfast is still an issue with large numbers of high-end retailers not represented (recent Javelin Group report to Belfast City Council). As a result, Belfast is not attracting sufficient spend from more affluent people living outside the City and overall retail spend per capita is 21% below UK average. The proposed Royal Exchange development (Royal Avenue) may provide required capacity but the timing for this scheme being brought forward is not clear at present.
Political stability and, based on the equivalent ROI experience, reduction of corporation tax in particular would give a significant boost to the commercial property sector in Northern Ireland,.
Other challenges are posed by the continued increase in online shopping and the trend to more frequent, lower-volume shopping in convenience outlets. These may lead to development of more distribution centres and convenience store sites which can also act as click-and collect hubs for online retailers”.