Exclusive: Report from INPRIO highlights buoyant first quarter but suggests office deals have stalled, writes John Breslin
Retail park sales are likely to continue to dominate the commercial property sector after a strong start from the estimated £40m purchase of a south Belfast site, according to a report.
Substantial deals, including the expected sale of Cityside Retail Park in north Belfast, are close to completion and, if signed before the end of June, could mean the value of deals in the second quarter coming close to the first three month of the year.
The investment total to the end of March was approximately £83.4m, the highest for a quarter since 2019 – bar the same period last year when the £87m sale of office block Merchant Square was completed.
INPRIO’s first NI PROP report found activity over the quarter was 30% above the five year average. The total was boosted by the March sale of Boucher Shopping Park to Mike Ashley’s Frasers Group, which INPRIO estimates was worth around £40m.
INPRIO director Neil McShane said: “The strong start is very positive, with the strength of retail in Northern Ireland again reinforced.
“Despite the challenges of structural change, Brexit and the Covid-19 pandemic, investors continue to see value and opportunity in bricks and mortar. Looking into Q2, a number of other retail assets are currently agreed, including Cityside Retail Park, Belfast.
“As we begin the second quarter there is circa £35m of deals agreed and/or in legals, indicating another active but steady quarter to come.
“Q2 includes a number of office deals, a sector which has been absent for the last two quarters. We anticipate that the pipeline of opportunities will continue to improve as the market responds to the removal of Covid restrictions”.
Other major first quarter deals included the sale of Connswater Shopping Centre and Retail Park (£16.25m) and Braidwater Retail Park, Ballymena (£4.8m).
But the report also notes that absence of any office deals over the quarter, replicating the inactivity of the previous three months.
This month saw the owner of the Rushmere Shopping Centre in Craigavon enter administration. Central Craigavon, the owner, wrote down the value of its assets nearly £40m to £57.5m, according to its accounts for 2019 published last year.
Parent company, Moyallen Holdings, reported an overall loss of £93m for 2019, largely due to revaluating its investment properties downwards by £95m, from £203m to £108m.
Mr McShane said that while shopping centre have faced challenges in recent years, there were some encouraging signs involving local companies and private investors involved in high profile recent deals, notably the Flagship in Bangor and Fairhill in Ballymena.
The new owners appear confident the centres can be turned around, reinvented, and made successful where they were failing previously, he added.
Shopping centre owners, who may have bought at a high price some years ago, have to grapple with asset values and liquidity issues. Big brand names are also leaving centres.
Retail Parks are more attractive as they often have free parking and larger, self standing stores more attractive to consumers, analyst argue.
Other properties bought by private investors include Connswater Shopping Centre and Retail Park, sold by Killultagh to a private investor for £16.25m, Abbey Trading Centre, Newtownabbey (£4.75m) and The Linen Green, Dungannon (£3.75m).
INPRIO is predicting movement in the market for office space over the next several months.
“Recent rental evidence would suggest that the office sector has maintained pre-pandemic levels. Levels of office occupation will continue to improve but there is a no doubt that the pandemic lockdowns have accelerated our shift to hybrid working,” Mr McShane said.
“But this has not represented a death knell, the numbers will improve but (the lockdowns) accelerated the inevitability of the hybrid format.
“There is no shortage of demand among investors for across all the core sectors but supply, particularly in the smaller lot range, remains a challenge.
“Belfast was never saturated with office space, so the new developments that are coming out of the ground will go some way to satisfy the continued demand for quality office accommodation in the city centre.”
Mr McShane also noted the increasing popularity of co-working spaces, citing the success of companies like Urban HQ.
Industrial property also had a strong first quarter, INPRIO reports. At £13.2m, volume was 72% above the five-year quarterly average.
This included the sale of catering supplier Bunzl’s Moy Road headquarters by David Samuel Properties to an unnamed buyer for £9.16m.
Dr Claire Shaw, a research analyst with INPRIO, said there were headwinds facing the sector. “Economic conditions and the political landscape are challenging. With high energy costs, inflation squeezing consumer income and both local and global political instability, economic growth forecasts for Northern Ireland have recently been downgraded.
“That said, the market is extremely resilient to local political instability and the early glimpse into Q2 suggests that commercial property continues to be attractive to a range of investors.”
A recent report by Lambert Smith Hampton revealed that £316.6m was invested in commercial property in 2021.