Three forecasts for the Northern Ireland economy have been released in as many days. Each forecaster (Danske Bank, EY and the Ulster University) predicts that NI is facing into uncertainty and potentially challenging times.
The general consensus is that the NI economy will grow by just over 1% this year. This sort of annual percentage growth is not going to see us at the top of any growth leagues but, in the context of the last decade where we witnessed some stark annual declines, it is to be welcomed.
Much more encouraging is the increasingly common sight of cranes on the Belfast skyline.
A fair proportion of current construction work is to supply the market with offices, including the new builds for Concentrix and Allstate, and big refurbishments to buildings such as River House on High Street, Longbridge House on Waring Street and Weaving Works on Ormeau Avenue.
However, in recognition that more could be done to stimulate the office market and meet future anticipated demand, Belfast City Council has announced a £19m fund to assist in starting the development of more Grade A office space in Belfast.
Given this, it seems timely to consider how the commercial office market is faring. Is the scale of demand ahead of the forecaster's view of the world? I have called on the experts from Savills.
The key question is whether Brexit is having any impact on the market. Simon McEvoy, Savills' head of office agency, says the best comparison is the first half of 2016 with the first half of 2017.
It is very much a case of 'as you were' with almost exactly the same amount of take-up in both periods of around 230,000 sq ft.
Then there is the level of demand in the market, which Simon says is strong, with over 800,000 sq ft of active requirements from the relatively immediate, predominately new inward investors seeking offices of 5,000-10,000 sq ft, to significant large existing occupiers with relocation requirements over the next 12-36 months.
Typically, the larger the tenant the earlier they come to the market with a requirement. To put this in context, Savills' annual review for 2016 saw just over 435,000 sq ft of office deals close out in Belfast, a post-recession record.
Current demand for office space would therefore appear to be buoyant. Can supply match the demand? The good news is that there is supply, although limited, to meet the immediate requirements and there is time to deliver to meet the longer term demand, but construction must start now.
The overall vacancy rate at the end of 2016 was 7.4%, according to Savills' 2016 Belfast report. However, the more telling figure is the vacancy rate for Grade A stock which was 2.7%. There have been a few notable refurbishments come to the market in 2017. That said, the office market supply is still tight, causing rents to rise and increasing appetite for new development.
Estimates suggest there is currently 600,000 sq ft under construction or refurbishment in Belfast. Almost two thirds is already reserved.
There are a further 22 developments that received planning approval that are not on site and an additional 23 are in the planning or pre-planning stages.
The scale of current refurbishments and planning applications for new developments suggest that a strong ongoing demand is expected. This is consistent with Belfast City Council research that predicts a demand for up to 1.5m sq ft of employment space per annum over the next decade.
High demand and low supply usually means a higher price. Savills see the current market for high quality refurb/prime Grade A rents firmly established at between £17.50 to £22.50 per sq ft. This compares well with our main competitors:
- Manchester £30-£35
- Cardiff £20-£25
- Birmingham £27.50-£32.50
- Glasgow £25-£30
- Dublin £47.50-£57.50
The view is that the Belfast market does have room for further rental growth up to the mid £20s per sq ft in order that developers can deliver new supply of similar specification and quality as these competing cities while still remaining competitive.
As a barometer of where our growth sectors lie, the technology, media and telecom sectors were the most active, accounting for one in five deals in 2016.
A quarter of those deals was from new entrants, highlighting Belfast's growing international reputation as a strong location.
This trend appears to be continuing in the first half of 2017 with notable take-up from Tullett Prebon, HCL and Anomali. Savills stress the need for the city to provide a variety of quality and versatile building stock from modern serviced, incubator style places through to new buildings that provide a solution from 50,000 sq ft to 200,000 sq ft.
I started this article noting a series of forecasts for fairly benign growth. I end it hopeful that the office property market represents a better barometer of where the Belfast economy is headed.