I have been tasked with providing a review of the commercial property market for 2020. This should be relatively straightforward; it has been brutal. COVID-19, and the necessary but challenging lockdown, has resulted in the toughest market I have experienced in my 20 years in the industry. This was to be expected and hence I have not been shocked by some of the headlines: “Car sales down 97%”; I was more surprised that 3% even happened. “Retail sales suffer worst decline on record”; well, that was inevitable. “Global stock markets experience worst crash since 1987”; of course they did. The world practically ground to a halt, so the stark economic graphs and stats didn’t alarm me. We have all just been through an incredibly tough time, going beyond financial concerns and damaging our livelihoods. Indeed, this pandemic is not going away overnight, so we will need to learn to live with it.
Whilst the headlines didn’t shock, I am concerned about what is to come. I don’t like uncertainty but I fear it will take some time for the fog to lift. What can we expect as we start to slowly crawl out from our abodes and back into a world we can barely recognise? I think it’s fair to say, we are in for a tough time. And, aside from the fact that we don’t know how long this will be with us, we also now have to deal with the recently-entered recession, perhaps accelerated by the lockdown, and also the continued and perhaps worsening turmoil coming with Brexit.
What about the local property investment market? I am frequently asked: are there any deals happening in NI at all? Well, I am pleased to be able to say yes, and some substantial deals at that. In the middle of lockdown, Savills brought to the market the new Amazon warehouse and distribution facility in Titanic Quarter. With 10 years secured to such an attractive covenant in the go-to industrial/distribution sector, strong interest was to be expected. Perhaps it should come as no surprise that it has generated considerable interest and is expected to sell in excess of the £24.5m guide price. This is not the only big deal happening.
The investment market in NI has long been dominated by retail transactions and this year will be no different. We have seen three substantial retail investments come to the market including Balloo Retail Park, Bangor (105,000 sq ft), Lisnagelvin Retail Park, Londonderry (62,000 sq ft) and the Currys PC World Megastore at Sprucefield (53,000 sq ft). Another prominent retail park in Greater Belfast has been agreed for sale in an off-market transaction, providing further evidence that there is demand for retail warehousing, in contrast to the challenges being felt on the high street. We have seen our fair share of Company Voluntary Arrangements (CVA’s) in 2020 but also suffered the loss of a long-established brand in Eason who decided to pull the shutters on Northern Ireland. The bakery chain, Greggs, closed various stores across the province and the DW Sports collapse into administration saw seven stores close.
The high street was already in a tough spot, but the global pandemic introduced a new low.
The iconic Custom House is now under offer having been marketed throughout lockdown and drawing considerable interest from across the UK. The marketing particulars suggest the Grade B+ listed building could lend itself to a range of potential uses including apartments, hotel, restaurant, event space or offices.
Much has been said about changes to the office sector in a month when we saw Castlebrooke secure outline planning for their office-led Tribeca scheme and Google decided against 200,000 sq ft of offices in Dublin, which would have housed some 2,000 workers. Less has been said about the significant footprint that Google retains having 1.1m sq ft for some 11,000 workers. However, suffice to say, change is here and we are likely to see a new way-of-life for workers, with many businesses offering a hybrid of working-from-home and coming to work. Perhaps this could cause some short to medium-term pain for traditional office landlords but it would be a good result for employees who want flexibility and businesses who could potentially drive down their occupational costs with a smaller footprint. Working-from-home has become a new norm but offices are here to stay. Some office developers may well be revisiting their plans but perhaps it will be to decide on scale and timing as opposed to total abandonment; many businesses have been equipped to facilitate working-from-home for years but with limited avail because of how offices provide a valued hub for staff. Castlebrooke may decide to scale back on their ambitious office plans but Belfast will still need a supply pipeline and the Tribeca scheme could prove critical to achieving that.
It will be interesting to see what role the flexible office market plays in the next few years, as companies may be reluctant to commit to new leases without considering all options available. Belfast has a healthy spread of choice in what is still a relatively new sector for the city. Scottish Provident, StepSpace, Clockwise, Glandore and Ormeau Baths all represent success stories in the flexible space market, but it is now boosted by new offerings in Dublin Road’s Hubflow and Urban HQ on Upper Queen Street. Perhaps we are now seeing this sub-sector reaching capacity but potential changes to work routines, resulting from the pandemic, could fuel further demand.
The industrial sector continues to be the most durable, and inevitably, the most attractive. Industrial topped Q2 UK transactions for the first time ever, driven by the spike in space needed to facilitate deliveries. From an occupational or an investment perspective, I believe that the industrial juggernaut will power on for some time yet.
The residential market bounced back quickly with the Royal Institution of Chartered Surveyors reporting prices hitting a five-year high, no doubt aided by the Chancellor’s stamp duty exemption for homes under £500k. This strong demand was further evidenced by the Moira One development of 88 homes which shifted the majority of its first phase just hours after being placed on the market. Lotus Homes achieved similar success with its 104 home Ashbourne Manor scheme in Carrickfergus, bagging £2.25m worth of sales in a quick turnaround. There were also buyers queuing for the release of another phase of the Deanery Demesne in Armagh which resulted in 15 bookings worth £2.85m, pushing current totals to an impressive 67 units. To say the demand for new-build residential is strong would be an understatement. The letting market isn’t looking too shabby either as demand remains unwavering for Belfast’s residential offering.
Whilst 2020 has been dominated by bad news stories, we have had some welcome highlights. Many will already be writing off the rest of this dreadful year and starting to prepare for 2021. Sadly I don’t see us plain-sailing into the New Year. We have little time left to secure a trade deal with the EU as the prospect of a no-deal Brexit seems to heighten. Furthermore, we still have no real sense of what economic damage has been done by COVID-19.
Regrettably, we have more tough times ahead. But, hopefully the worst is behind us and, in the past, we have shown our strength and resilience when needed. We endured a long and challenging recession triggered by the 2008 financial crisis, so we know that we can adapt when times get tough. When things do improve, and they will, we will all put our shoulder to the wheel.
Neil McShane BSc FRICS