Positive signs that downturn is levelling out
There has been somewhat of an improvement in property market activity in Northern Ireland in recent months after what was a very challenging period in the first half of 2009. While the region has not escaped the effects of the economic downturn, the Northern Ireland economy is better positioned than the Republic where the economy is expected to contract by more than 8.0% in 2009.
In the office sector, tenant demand has eased considerably in the first half of 2009, putting downward pressure on rental levels. Prime office rents in Belfast now stand at £150 per sq m with further downward pressure likely considering the quantum of new office accommodation planned. Compared with a current quoting headline rental level of €430 per m2 in Dublin, these rental levels are extremely competitive which bodes well for attracting new foreign direct investment into the region.
While cross-border grocery shopping from south to north has helped boost retail sales in the region in 2009, especially in border towns, many sectors of the retail market are finding trading conditions challenging and vacancy rates in prime retail locations have increased. Against this backdrop, prime zone A retail rents are now on the order of £1,750 per sq m in the region, having peaked at approximately £2,750 per sq m in recent years. This is encouraging some retailers to look for opportunities in the region.
In line with trends seen around the world, prime yields in the investment market in Northern Ireland have increased significantly over the past year. Prime office yields in Belfast are currently on the order of 6.25%, prime retail yields at approximately 5.75% while prime industrial yields are approximately 7.5%. Transactional activity in the investment market remains subdued, although there have been a number of sale-and-leaseback deals negotiated and there is good interest in some of the investment assets that have recently been brought to market. Although funding remains difficult to source, investor sentiment and appetite for prime property has improved somewhat in recent months.
As I see it, while the economy has slowed and the property market in Northern Ireland has been difficult, there are a number of reasons to be optimistic. A number of transactions are currently being negotiated and should be completed in the third quarter. While rental and capital values are likely to remain under pressure for some time, there is strong interest in some of the investment product that has come to market including the Richmond Shopping Centre in Londonderry and a portfolio of First Trust branches in the region, which leads me to believe that transactional activity in the investment market will improve this autumn. All in all, I feel we are nearing the bottom of this cycle and will hopefully see an improvement in activity and transactions.
Brian Lavery is managing director of CB Richard Eliis, Belfast