Whilst Northern Ireland was basking in some of the highest temperatures ever recorded in the region, this summer also saw activity heat up in the commercial property market.
In September, the sale of the Metro Building on Donegall Square South currently occupied by Capita, the News Letter and its owner Johnston Publishing and Yell, marked the largest deal of the year so far. The 70,000 sq. ft. Grade A office asset was purchased by a private property trust which paid well over the £21m asking price in the face of significant competition.
This was preceded by high profile investment activity in June and July which saw French asset managers, Corum Asset Management, enter the Northern Ireland market with its £16.4m acquisition of 40-46 Donegall Place, currently home to Next and Eason, and the £15.2m sale of Obel 68 to Belfast Harbour.
Sitting adjacent to the Obel Tower, Obel 68 comprises 52,000 sq ft of Grade A office accommodation majority let to international law firm Allen and Overy. Belfast Harbour saw off competition from numerous bidders to bring the asset back into local ownership, and with the Harbour already owning the City Quays development in Clarendon Dock, this fits well with the strategic business plan for the area.
Corum Asset Management's entry to Northern Ireland was particularly interesting as it marked only its second purchase in the UK, underlining the opportunity Northern Ireland offers for commercial property investors. From identifying and agreeing the deal, this transaction, which totalled £16.4m, completed within one month.
These three assets equate to more than £50m being transacted since June. This covers approximately 189,000 sq ft of prime office and retail space within Belfast city centre.
So whilst investment activity was slow at the start of the year, as has been a trend over the last number of years, investment volumes look set to improve towards the end of the year with several high profile office and retail assets being prepared for sale before year end, the largest of which is Crescent Link Retail Park in Derry Londonderry.
Also of note is the continuing demand from local investors for bankable assets at a lower lot size. After selling a number of these over the summer, we are encouraged by the continued demand in this space.
Whilst decision makers within the industry are certainly becoming more and more mindful of the pending March 29, 2019 Brexit deadline and the lingering uncertainty, investors are recognising the core fundamentals of the local market are robust. Clarity regarding 'the deal' and of course, Stormont, is required to maintain the momentum of recent months.
The office market remains arguably our most buoyant sector, with the first six months of 2018 recording the highest half year office take up levels (538,646 sq ft) since Lisney began its comprehensive Northern Ireland Commercial Property Market Reports in 2012. This figure is comparable to 326,000 sq ft for the first six months in 2017, and 535,000 sq ft in 2016 - a close second to the 2018 volume. Take up volumes range from sub 1000 sq ft to 149,200 sq ft and whilst technology, media and telecoms continue to dominate, accounting for almost 50% of office take up so far this year, a growing appetite for collaborative working space is emerging locally.
Supply remains an issue with no 'new' stock scheduled to be available to occupy this side of 2019, when we hope to see a number of newly refurbished buildings open their doors, including Chichester House at 48,000 sq ft, Artola House at 19,000 sq ft and Moneda House at 17,000 sq ft.
On a longer finger, plans have been submitted for the redevelopment of the former Belfast Telegraph building, to be renamed, 'The Sixth'. This regeneration of the landmark building, which is being promoted by Belfast City Council in partnership with McAleer & Rushe, will bolster the city with an incredible 230,000 sq ft of workspace. That's all in time for a predicted uplift in headline rents which are expected to rise from approximately £21 per sq ft in 2018 to £23 by 2020. But beyond the heatwave, areas of low pressure have gathered over the retail sector which continues to be dominated by Company Voluntary Agreements (CVAs) and restructuring. Belfast city centre has, by and large, so far emerged unscathed from the recent wave of CVAs, the fire which destroyed the Bank Buildings in Belfast, occupied by Primark, has wreaked havoc for many city centre retailers.
The CVAs have created opportunity for some retailers, namely Poundstretcher, B&M Bargains and The Range, all of which have been active in taking space. Cafes and food outlets have accounted for a lot of activity in this sector so far this year both in the city centre and at shopping centres, such as Tony Macaroni opening at Bangor's Bloomfield Shopping Centre, Pizza Punks landing in Belfast's Longbridge House, and two new Ground units in Victoria Square and on Main Street, Banbridge.
On the industrial front, activity has slowed slightly following a strong start to the year including the first commercial data centre being opened in Coleraine by 5NINES, Queen's University Belfast opening a £7.5m advanced manufacturing facility and Invest NI offering support to six local manufacturing companies for expansion and job creation. However, we do believe demand will increase mirroring trends in the UK and Republic of Ireland, making it a sector to watch in the coming months.
All in all, the commercial property market is expected to remain robust over the rest of the year, most likely on a reasonable par with 2017. With uncertainty surrounding Brexit and a complete lack of local government, the performance of the market has been a positive for Northern Ireland in recent months. Assuming a sensible approach to our political obstacles we are optimistic that the market will continue on its growth trajectory and achieve its potential in the coming years.
Nicky Finnieston is Lisney's investment director