Belfast Telegraph

Why property investors will shift focus in 2018

 

By Neil McShane, Lambert Smith Hampton

At first glance, the fact that the commercial property investment market in Northern Ireland was valued at almost £341m last year suggests it is demonstrating resilience and keeping pace with the activity of recent years.

It's just above the five-year average of £324m and, when you consider the impact of ongoing political instability last year, it seems in keeping with recent trends.

When the 2017 figures are further analysed, it is impossible not to recognise the lacklustre performance of the first half of the year and the impact of the £123m sale of CastleCourt Shopping Centre in July, which provided an unusual boost to the third quarter.

On the other hand, alternative assets - which include hotels, car parks, leisure, care homes and medical facilities - are becoming a more popular asset class in Northern Ireland.

Investment in smaller lots continues to be driven by local individuals and families.

The key change in 2017 was the decline in supply of investment properties. The number of properties offered to the open market has declined year-on-year since 2015.

Notably, there have been no significant changes to the average asking price (£4.7m in 2017), the distribution of properties across pricing categories (69% under £1m in 2017) and the dominance of retail assets brought to market (72% of volume in 2017).

While supply has reduced, the demand for good-quality properties has not abated.

During the second half of 2017, there was a trend of competitive bidding for smaller lots with attractive and strong tenants. For example, the Starbucks and Boojum properties on Botanic Avenue, the Caffe Nero premises in Newcastle and Ormeau Road Belfast, and the Greggs properties in Bangor and Lisburn, all attracted significant interest from local investors.

Compared with 2017, I believe 2018 will experience a period of relative political stability within the overarching instability.

The difficult first stage Brexit talks concluded with assurances that the Irish border is a priority issue, and Northern Ireland continues to function without the Executive, albeit how effectively is up for debate.

There is no doubt, however, that the restoration of the Executive would be hugely beneficial to business and the commercial property market.

Regardless, the Northern Irish market continues to provide excellent opportunities for owners who want to dispose of good-quality assets.

The level of local interest in good-quality products has grown stronger over the last decade, and will continue to be a driver of deals in 2018, although this will be balanced with continued investor caution and heightened due diligence.

Belfast's dominance as the primary location for investment opportunities will continue to grow in 2018.

This is linked, in part, to the corresponding growth in the alternative investment sector and the significant development of hotels and student accommodation in the city. The diminished quality supply in the traditional sectors of retail and office means that investors are looking beyond the traditional asset classes for opportunities to meet their needs. Therefore we expect to see even more car parks, gyms, care homes and hotels changing hands in 2018.

Neil McShane is director, capital markets, at Lambert Smith Hampton and a fellow of RICS

Belfast Telegraph

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