INPRIO Annual Commercial Property Market Review 2021

The world is waking up….these were the words of a client back in September, as we continued on our slow path back to normality.  A few months later, and we can see a further improvement, but it is undoubtedly small steps.  It is difficult to say just how long we will have to wait for a full recovery, but it is fair to say our new norm will look different.

So, how has the property market fared in 2021 so far?  Well, to state the obvious, it has seen a vast improvement on last year; that would not be difficult.  The investment sector always provides a useful bellwether for the health of the commercial property market.  Up to the end of Q3, we have recorded £219 million of investment transactions across all sectors, more than double the same period in 2020 (£106m).  Typically, the retail sector accounts for the largest share of the market but not this year: the landmark sale of Merchant Square office development at £87m laid down the marker for the year ahead.  A number of smaller, but significant, office sales followed including Goodwood House (£20m), the former Ulster Bank offices at Danesfort (£6m) and Dataworks 1 at Kings Hall (£4.7m).  

Whilst this activity suggests continued confidence in the office sector, it is the acquisition of Merchant Square by a Middle Eastern investor that represents the biggest endorsement for Belfast’s office market.  This confidence is well-placed.  It has been encouraging to see local developers pressing ahead with their plans despite constant questions about the future of offices, and rightly so.  But it is the occupational demand, and indeed deals done, that represent the most important mark of confidence in a sector that has endured prevailing headwinds.  That said, the strongest demand is for the best quality offices available, most of which would be classified as Grade A.  We have plenty of excellent examples including Belfast Harbour Commissioner’s latest addition to their growing office complement, City Quays 3 (250,000 ft2), MRP’s hugely ambitious restoration and development project, The Ewart (210,000 ft2) and Titanic Quarter’s impressive Olympic House (147,000 ft2).  Furthermore, the purchaser of the iconic Custom House is also adding to the offering with a full refurbishment underway (58,000 ft2) and Bywater recently launched their exciting refurbished 35DP, above Boots on Donegall Place (30,000 ft2).  The rental deals have more than justified this confidence in the sector as we have seen pre-covid levels matched at £22 to £24 per square foot for well-located Grade A buildings.  Furthermore, to the end of Q3, we have seen in excess of 130,000 ft2 secured across 30 deals.  With various other deals in legals, we forecast volume exceeding 200,000 ft2, a comfortable margin ahead of last year’s total of 140,000 ft2.  

Whilst ousted from its usual pole position in the investment sector, retail continues to perform well with significant assets coming to the market and strong purchaser interest ensuing.  Q3 concluded with some £72m transacted, most of which were retail parks which continue to attract keen interest.  Notable deals include Balloo Retail Park in Bangor (£24.8m), Shane Retail Park in Belfast (£23m) and Lisnagelvin Retail Park in Londonderry (£9.75m).  Showgrounds Retail Park in Omagh (£16m) is expected to complete in Q4 and bids have been called for another £30m across four other retail parks.  

There was less activity in the shopping centre sector with Connswater in Belfast expected to complete in Q4 (guide £15.5m) and Fairhill Shopping Centre in Ballymena (guide £10m) which sold in August.

The acquisition of the former Tesco Metro building on Royal Avenue “for civic use” by Belfast City Council represents fantastic news for the city centre as it could become a hub of activity and breathe more life into Bank Square to the rear.  It could also improve the links between city centre shopping and the Ulster University campus.

Strong demand for industrial property has continued but the lack of stock remains the biggest challenge.  Titanic Studios, home to HBO, has gone on the market and is likely to generate considerable interest. Alternative uses accounted for a small part of the overall market.  We anticipate 2021 volume should exceed £280m which would represent a significant stride forward from last year’s total at £164m.  

So, there are a lot of numbers to digest, but what does it all mean?  The demand for retail parks is unsurprising as they demonstrated excellent resilience, and a speedy recovery, when reopened to shoppers.  The convenience of free parking, and well-connected out-of-town locations, makes for an attractive option for shoppers, something investors are well tuned in to.  For shopping centres across the UK, the departure of Debenhams from the high street represented a huge challenge but we have since seen many examples where creative landlords have repurposed the vacant space with alternative uses.

The office sector has been fundamentally changed by COVID and there’s no doubt flexibility is here to stay, but the evidence does not suggest the long term damage proclaimed by some during lockdowns.  That said, the substantial contingent still working-from-home continues to have a negative impact for many city centre businesses.  The return of public sector workers will no doubt have an overnight transformative impact; the sooner the better.  

We are, by no means, out of the woods.  We have more turbulence ahead.  The cost of living continues to put pressure on households across the UK as inflation increased to 3.1%.  Whilst Bank of England voted 7-2 in favour of maintaining the current record low rate of 0.1%, in order to meet the Government inflation target of 2%, the Monetary Policy Committee could not rule out an imminent increase.  Political uncertainty around ongoing Brexit negotiations and, more specifically, the Northern Ireland Protocol, will undoubtedly influence  investor sentiment, both locally and, to a greater degree, internationally, but a good result would provide a welcome injection.  We have had bumps in the road before, and will have more ahead, but we are good at rolling with the punches and I am confident the trajectory will continue in the right direction.

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