Com­mer­cial prop­erty

By Neil Mcshane, Founder and Direc­tor of com­mer­cial prop­erty in­vest­ment con­sul­tancy In Prio

Belfast Telegraph - Top 100 Northern Ireland Companies - - CONTENTS -

The chal­lenges in the com­mer­cial prop­erty mar­ket have been well-doc­u­mented. But how has the mar­ket ac­tu­ally per­formed and what can we ex­pect look­ing for­ward? The com­mer­cial prop­erty mar­ket and, more specif­i­cally, the in­vest­ment mar­ket has, over the last three years, en­dured a sus­tained chal­lenge due to Brexit un­cer­tainty and fur­ther com­pounded by our more lo­cal is­sue of the lack of an Ex­ec­u­tive.

Whilst all sec­tors have been in some way af­fected, the spot­light re­mains fo­cussed on re­tail’s prob­lems.

By con­trast, the of­fice oc­cu­pier sec­tor has grown in strength, although it too is not with­out its chal­lenges.

Most re­cently, we have seen cred­i­tors of depart­ment store Deben­hams back a re­struc­tur­ing plan which will see up to 50 stores close. How­ever, the Com­pany Vol­un­tary Ar­range­ment (CVA), which in­cludes rent re­duc­tions as well as store clo­sures, has been de­scribed by the joint su­per­vi­sor of the CVA as “an im­por­tant step for­ward for Deben­hams” which will “pre­serve as many stores and jobs as pos­si­ble”. This CVA could be enough to save what is a long-es­tab­lished house­hold name on our high street.

The im­pact of on­line re­tail on the high street has been a pop­u­lar sub­ject of dis­cus­sion for some time now. How­ever, while it con­tin­ues to give cause for con­cern, is that con­cern still jus­ti­fied or in any way mis­placed? It has been shown that on­line re­tail growth rose steadily for a num­ber of years be­fore reach­ing a plateau and many ex­perts be­lieve that it will con­tinue to main­tain this level for the fore­see­able fu­ture. If in­deed this is the case, it would sug­gest that our high streets have en­dured sus­tained hits as a re­sult of the rise of in­ter­net shop­ping but, go­ing for­ward, our high streets and on­line re­tail can co-ex­ist.

We have also just had long-awaited con­fir­ma­tion that the Depart­ment of Fi­nance has an­nounced a fun­da­men­tal re­view of busi­ness rates, al­beit min­is­te­rial ap­proval will be needed to bring for­ward rec­om­men­da­tions. This will be the first fun­da­men­tal and com­pre­hen­sive re­view of non-do­mes­tic rates in the UK. This could lead to wel­come news for small busi­nesses as part of the re­gen­er­a­tion of city and town cen­tres across North­ern Ire­land.

Tak­ing a closer look at the in­vest­ment sec­tor, 2018 proved to be a tough year. At £175m, the to­tal volume of trans­ac­tions rep­re­sented a five-year low. How­ever, if the 2017 sale of Castle­court Shop­ping Centre (£125m) is re­moved, the last three years do not look so vastly dif­fer­ent and we could eas­ily point to the un­cer­tainty trig­gered and sus­tained by Brexit.

But we should not ig­nore the im­pact of Stor­mont, the global eco­nomic changes and the possibilit­y that this is ac­tu­ally part of the cy­cle of in­vest­ment.

2019 is off to a rea­son­able start with more than £100m ex­pected to com­plete in the first half but, even if these vol­umes con­tinue for the sec­ond half, it is still some way off the post-re­ces­sion 2014 fig­ure of nearly £500m.

Any chance of re­turn­ing to these heights will need a Brexit deal, and per­haps that is fi­nally on the hori­zon. Com­bined with a re­turn to Stor­mont, we could see the in­vest­ment mar­ket re­turn to a health­ier place along with a re­cov­er­ing high street.

The buyer trend of ‘flight to qual­ity’ has been sus­tained through the pe­riod of tur­bu­lence and we have con­tin­ued to see strong de­mand, and in­deed prices, for good qual­ity prod­uct across all sec­tors. Fur­ther­more, the sharp yields be­ing achieved in Belfast have led to in­vestors ex­plor­ing strong provin­cial towns in or­der to de­liver more at­trac­tive re­turns.

Much has been said about the success of the Belfast of­fice mar­ket. De­spite the chal­leng­ing po­lit­i­cal cli­mate, the Belfast mar­ket had a strong take-up of nearly 900,000 sq ft in 2018 which rep­re­sented a new an­nual record. The de­mand from oc­cu­piers for Grade A stock ac­counted for the ma­jor­ity of the an­nual take-up but this was only pos­si­ble be­cause of the prior in­crease in sup­ply. Ser­viced of­fices and co-work­ing space has played its part in boost­ing these fig­ures with Clockwise tak­ing some 30,000 ft2 at River House and with Ormeau Baths dou­bling its floorspace. The suc­cess­ful take-up in 2018 has in­evitably hit the availabili­ty and new-builds con­tin­ued to be driven by, if not re­liant on, pre-lets. Qual­ity spec­u­la­tive de­vel­op­ment is needed in or­der to sat­isfy this con­tin­ued de­mand. This is ev­i­denced by the re­cent ac­tions of both Al­ls­tate and Kainos. The for­mer had to be­come a de­vel­oper to sat­isfy their space re­quire­ment and the lat­ter re­cently ac­quired the Dublin Road Movie House Cinema, the pro­posed site for a planned de­vel­op­ment known as Bankmore Square, to build their own of­fices.

While we have en­dured some tough years, it could be said that many ad­just­ments in the mar­ket were needed whether it was the re­bas­ing of re­tail rental values, re­pair­ing of the high street or high­light­ing the is­sue with busi­ness rates in or­der to pro­vide relief for small busi­nesses. With a lot of pain taken, a po­ten­tial Brexit deal in sight and talks re-com­menced in or­der to re­store the ex­ec­u­tive, I ex­pect that many in­vestors will be ready­ing them­selves to en­ter or in­deed re-en­ter the prop­erty mar­ket.

The re­moval of this un­cer­tainty could sub­stan­tially un­lock the sup­ply short­age and a com­bi­na­tion of both could mean more opportunit­ies but at rea­son­able prices. Maybe it’s too early to be op­ti­mistic, but there are good rea­sons to be get­ting ready to put com­mer­cial prop­erty back on the radar.

A bird’s eye view from River House in Belfast, home of co-work­ing space de­vel­oped by Clockwise

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