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Northern Ireland Commercial Property Outlook 2014
Northern Ireland Commercial Property Outlook 2014
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2012 revenue). The Company has approximately 37,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com
In Ireland, with offices in Dublin and Belfast, CBRE is the country’s largest commercial real estate services company, now employing over 120 employees and offering a full range of property services including property sales and acquisitions, leasing and management, investment, corporate services, debt advisory, project management, consultancy, valuations and research. Please visit our website at www.cbre.ie or www.cbre.ie/ni
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REVIEW OF 2013
The year 2013 was a year of two halves in the Northern Ireland property market. Although transactional activity was less during the first six months of 2013 than had been anticipated there was a notable increase in transactional activity in the second half of the year, particularly in the investment sector of the market as more properties were released for sale. While NAMA and the banks were active sellers of investment property in Northern Ireland last year, there was also an increase in the volume of consensual sales by borrowers over the course of the last 12 months. Demand was primarily driven by pricing that remains below replacement cost in many cases and the comparative gap between property yields and interest rates, which according to the Bank of England are going to remain fixed at 0.5% throughout 2014. There was considerable money chasing prime investment opportunities across the region in 2013 and we also witnessed a resumption of debt funding from some banks for prime assets. Demand from UK institutions remained firmly focussed on prime investment opportunities in key population centres including Belfast, Derry and Newry although local buyers were also active outside of these locations. There was particularly strong demand for supermarkets, out-of-town retail and office properties last year. As a result of the strength of demand, prime yields in Northern Ireland contracted during the course of the year.
In contrast to the volumes of activity witnessed in the investment sector in Northern Ireland last year, occupier activity across the region remained relatively muted during 2013. The news that a decision to enable Northern Ireland to set its own rate of corporate tax was put on hold until after the Scottish Independence elections in September 2014 was disappointing as it is critical to stimulating Foreign Direct Investment (FDI) and in turn boosting office and industrial take-up across the region. Office take-up in Belfast in 2013 was up 46% year-on-year, having reached 37,313m2 (401,484 square foot) but was skewed by a small number of larger transactions, such as a 9,108m2 (98,000 square foot) letting to Land and Property Services at Lanyon Plaza in Belfast during the second quarter of the year - one of the largest single office lettings in the city in a number of years. The retail sector in Northern Ireland had a challenging year although there were signs of improvement in the second half of 2013 with a number of retailers opening new premises. Activity in the industrial occupier market was largely dominated by relatively short-term lettings off low rents although there were also a number of sales to owner-occupiers recorded during the year. No rental growth was recorded in Northern Ireland last year although prime rents in all sectors remained stable during 2013.On a more positive note, the hosting of the G8 Summit, the Derry~Londonderry City of Culture, the World Police and Fire Games and the Northern Ireland investment
summit were all significant events in 2013 and as a result, hotels, bars and restaurants across the region had a good year.
THERE WAS CONSIDERABLE MONEY CHASING PRIME INVESTMENT OPPORTUNITIES ACROSS THE REGION IN 2013 AND WE ALSO WITNESSED A RESUMPTION OF BANK FUNDING FOR PRIME ASSETS
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PAGE 1
Introduction
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CONTENTS
The Office Market. . . . page 7
The Retail Market . . . page 10
The Industrial & . . . . page 12 Logistics Market
£
The Investment Market . . . page 15
The Hotel & Licensed . . . . page 19 Market
The Development . . . . . . . .page 18 Land Market
CBRE Contacts . . . . . . . . . page 20
Outlook 2014 . . . . . . . page 5
PAGE 3
CAPITAL MARKETS
DEVELOPMENT LAND
HOTEL & LICENCEDINDUSTRIAL AGENCY
RETAIL AGENCY
OFFICE AGENCY
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OUTLOOK 2014
Last year marked a major turning point for the commercial property market in Northern Ireland with the first tentative signs of recovery emerging in the second half of the year. The most notable trend was an increase in activity in the investment sector as the process of deleveraging kicked off in Northern Ireland in the last six months of 2013. There was strong demand from both institutional and local buyers for the assets that came available for sale. Activity in the occupier sectors across the province was more subdued however. 2014 is shaping up to be a busier year for the commercial property market in Northern Ireland, fuelled to a large extent by improving economic indicators and by some improvement in the availability of debt funding. We are likely to see property being released for sale by NAMA and various financial institutions at a similar pace to the second half of last year. We expect to see continued demand from UK institutions for prime assets that come available for sale in Northern Ireland, which in turn will lead to some further yield compression over the course of the next 12 months.
We expect to see further new development and refurbishment starting in the Belfast office market in 2014, as a result of the scarcity of Grade A office accommodation in the city, although shortages will remain until such time as these new office schemes come on stream. We expect to see rental growth emerging
in the office sector during 2014 for the first time in many years, with prime rents expected to increase by as much as 20% this year. However, it is likely to be some time before rental growth re-emerges in the retail and industrial sectors of the market.
Looking further ahead, it is difficult to predict the speed at which the real estate market will have to adapt as a result of technological advances and the effects of globalisation over the coming years. Technological change and globalisation are the two trends that will dominate the next real estate cycle, affecting each sector of the market in a variety of different ways. It is now vital for investors, developers, occupiers and their advisors to keep abreast of emerging trends to embrace how real estate will be planned, designed, developed, occupied, owned and managed over the coming years and decades.
TECHNOLOGICAL CHANGE AND GLOBALISATION ARE THE TWO TRENDS THAT WILL DOMINATE THE NEXT REAL ESTATE CYCLE
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Brian LaveryManaging DirectorCBRE Northern Ireland
PAGE 5
Occupier Markets
Office take-up of some 37,313m2 (401,484 sq. ft.) was achieved in the Belfast market in 2013, which was up 46% compared to the previous year. This was skewed to some extent by a small number of relatively large lettings with the bulk of 2013 lettings in the city comprising relatively small transactions. Indeed, 35 of the 56 office lettings signed in the city during 2013 extended to less than 465m2 (5,000 square foot). We expect improving
economic conditions to bolster demand for new office accommodation in the Northern Ireland market in 2014 with demand expected to emanate from the expansion of existing occupiers as well as from new entrants. Although there are a number of new office developments planned, which will ultimately ease the shortage of Grade A office accommodation in the city, it will be some time before these schemes come on stream. We therefore expect to see rental growth emerging in the office sector in Northern Ireland over the course of the next 12 months. We expect prime office rents in Belfast to increase by 20% to
reach £161.46 per square metre (£15 per sq. ft.) by year-end. This anticipated rental growth will in turn boost demand for office investment properties in core locations. In addition to new development, we expect to see increased focus on office refurbishment projects although this will obviously be dependent on the availability of funding.
Block C, Gateway Building, Titanic Quarter, Belfast Q4 2013: CBRE Office Agency letting of 1,904m2 (20,500 sq. ft.) to Citi Group at a record headline rent of £14.50 per sq. ft.
WE EXPECT PRIME OFFICE RENTS IN BELFAST TO INCREASE BY 20% TO REACH £161.46 PER SQUARE METRE (£15 PER SQ. FT.) BY YEAR-END
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THE OFFICE MARKETPAGE 7
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THE OFFICE MARKET PAGE 8
16.0
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Prime Office Rents Northern Ireland 2004-2014
Lanyon PlazaQ2 2103: 98,000 sq. ft. let to Land and Property Services
THE OFFICE MARKETPAGE 9
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200,000
Public Sector/Regulatory Body
Professional
Manufacturing Industrial & Energy (MIE)
Financial Services
Consumer Services & Leisure
Computers / Hi-Tech
Business Services
Belfast Office Take-Up by Sector 2011-2013
CQ1 First new major office development in Belfast for 6 years extending to 69,000 sq. ft. Due for completion Q4 2014 / Q1 2015
180,000
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Belfast Office Take-Up Q1 2011 - Q4 2013
THE RETAIL MARKET PAGE 10
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The retail occupational market in Northern Ireland had a challenging year in 2013 although signs of improvement began to emerge in the latter half of the year with an increase in the number of retailers opening new stores and most retailers reporting a good Christmas trading season despite a number of dissident attacks in Belfast city centre. New entrants in 2013 included Kiehl’s, iConnect (an
Apple Premium Reseller), Prezzo and Di Maggios. As we enter 2014, retailers are more confident, which bodes well for the retail property market in the region over the course of the next 12 months. While discount retailers were the most active occupiers over the last number of years, we expect to see more high-profile retail brands coming to the fore during 2014, a trend that first began to
manifest itself last year following the opening of new stores by retailers including Kiehl’s, H&M and Next. In addition to existing retailers expanding and relocating, we expect to see several new retailers entering the market in 2014. While prime high streets and major shopping centres accounted for the greatest proportion of activity in the retail property market last year, we expect
The Arc, Titanic Quarter, Belfast Q1 2013: CBRE acting on behalf of the landlord, secured the first letting of the retail space at TQ with a letting of 3,000 sq. ft. to Mace
300.0
250.0
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Prime Zone A Retail Rents Northern Ireland 2004-2014
Victoria Square, BelfastQ4 2013. Acting on behalf of the tenant, CBRE Retail Agency secured a letting of 1,032 sq. ft. for Kiehl’s
THE RETAIL MARKETPAGE 11
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AS WE ENTER 2014, RETAILERS ARE MORE CONFIDENT, WHICH BODES WELL FOR THE RETAIL PROPERTY MARKET IN THE REGION OVER THE COURSE OF THE NEXT 12 MONTHS
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to see this momentum filtering down to secondary streets and provincial locations to some degree during 2014. Unlike the office sector, we do not expect to see rental growth re-emerging in the retail sector in Northern Ireland this year. As each year passes, technological advances are having a greater impact on the retail sector. In addition to managing their physical stores, retailers have to continuously adapt their business models to account for new sales channels and changes in consumer shopping habits. The retail experience is adapting to become more of an entertainment experience and retail stores have to change from being ‘market places’ to ‘meeting places’ in order to attract and maintain customers. We expect to see an increase in the number of restaurant and coffee shops opening new stores this year following a trend witnessed in 2013 with Caffé Nero, Costa Coffee, Di Maggios, Prezzo and Nando’s all active in the market. The single biggest issue for most retailers in the Northern Ireland market is
the disproportionate cost of rates. Unfortunately, a revaluation is not due to come into effect until 2015. As this sector begins to move to the next phase of recovery, intensive asset management has never been more important.
THE INDUSTRIAL & LOGISTICS MARKET
Vacancy rates in the industrial market in Northern Ireland will continue to decline over the course of the next 12 months, primarily as a result of no new development occurring in this sector for several years. We expect take-up in this sector in 2014 to mainly comprise short-term lettings at relatively low rents as has been the case over the last number of years. We are not anticipating any rental growth in this sector of the market although prime rents have clearly stabilised at current
values. We expect continued demand from owner occupiers for freehold property as prices remain below replacement cost. As investors increasingly move up the risk curve, we could see increased appetite for prime industrial investment opportunities although office and retail properties are likely to continue to be most sought after.
PAGE 12
11 Enterprise Way, MalluskQ2 2013: Modern self-contained industrial unit let to two tenants producing an income of £59,775pa sold for £470,000 in June 2013 equating to £36.85 per sq. ft.
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THE INDUSTRIAL & LOGISTICS MARKETPAGE 13
Knockmore Mill, LisburnQ4 2013: Sold by CBRE December 2013 for £650,000. Property comprises 87,000 sq. ft. on 10 acres. Sold on behalf of a subsidiary of ABF
34 Roughfort Road, MalluskQ1 2013: Modern Self-contained warehouse unit on site of 1.8 acres sold
February 13 for £402,000. Equates to c.£21 per sq. ft. Sold by CBRE acting on behalf of KPMG
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7.0
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£ pe
r Sq
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Prime Industrial Rents Northern Ireland 2004-2014
The Investment Market
THE INVESTMENT MARKET£
PAGE 15
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There was a notable improvement in transactional activity in the investment sector in Northern Ireland in the second half of 2013 in particular, with several high-profile retail properties changing hands and a discernible improvement in investor sentiment. In total, approximately £160 million was invested in income-producing investments in the Northern Ireland market during 2013 in 17 individual transactions compared to more than
£92 million invested in 8 individual transactions in the previous year. 68% of the investment spend in the province in 2013 comprised retail properties with a further 25% being invested in office investments. We expect this momentum to continue in 2014 considering the volume of deleveraging that still
has to occur in the Northern Ireland market. There is reasonably good visibility on investments that are likely to come to the market for sale in 2014, including some shopping centres, which suggests an even higher volume of investment activity occurring in the province this year.
Tesco Extra, Highfield Road, Craigavon Q4 2013: CBRE advised the purchaser on the purchase of this prime retail property for £23.3 million, reflecting a net initial yield of 5.63%
THE INVESTMENT MARKET£PAGE 16
Lyons House, Main Street, BangorQ4, 2013: CBRE advised the vendor on the sale of this property to a local investor for
£1 million, reflecting an initial yield of 13.3%
Tesco Extra, Downshire Road, Newry Q3 2013: CBRE advised vendor on the sale of newly constructed Tesco store to Scottish Widows IP for £30.3 million, reflecting
a net initial yield of 4.95%
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Demand for prime investments in the key population centres is expected to continue to emanate from UK institutional buyers, many of which have purchased in the last 12 months and who may want further exposure to the region. Outside of prime locations, demand is likely to comprise local purchasers in the main.
Over the last few years, investors have been risk averse and focussed on investing in core assets in prime locations. They concentrated on safe, dry investments that offered bond-like qualities because of economic and property market uncertainties. Now that we are entering a phase of stronger economic growth, some investors are expected to selectively move up the risk curve from core real estate to secondary assets in an effort to boost returns. We expect to see further yield compression of between 25 and 50 basis points being experienced in the Northern Ireland market over the course of the next 12 months on the basis that yields are still attractive relative to regional UK markets and are still some way off their long-term averages. Demand for office investments will increase considering the extent of rental growth that is anticipated for Grade A office stock during 2014.
YIELDS ARE STILL ATTRACTIVE RELATIVE TO REGIONAL UK MARKETS AND ARE STILL SOME WAY OFF THEIR LONG-TERM AVERAGES
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THE INVESTMENT MARKET£
PAGE 17
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9.0
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e Yi
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Zone A Retail Prime Office Prime Industrial
Prime Investment Yields Northern Ireland 2004-2014(Q1)
Leisure Industrial Retail Offices
1
7
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Investment Spend Northern Ireland 2010-2013
Scottish Mutual Building, Donegall Square South, BelfastQ2 2013, CBRE advised vendor on the sale of listed building to a hotel operator for £2 million
THE DEVELOPMENT LAND MARKET PAGE 18
Magheralave Road, Lisburn Q4 2014 – 25 acres agreed for sale in excess of £3 million
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Now that both the commercial and residential property markets are moving into a growth phase and development is coming back into focus, we expect to see an increase in the volume of development land being traded in the Northern Ireland market over the course of 2014. The vendors will, in the main, comprise a combination of various banks, receivers and consensual borrowers. Outside
Belfast, we expect to see a significant amount of provincial land being traded again in 2014 although buyers are likely to comprise local purchasers in the main. Only lands that are appropriately priced will attract buyers however with little or no premium payable for the benefit of zoning or planning permission.
A significant land holding of 25 acres was agreed for sale at the end of 2013 in Lisburn for a price believed to be in excess of £3 million.
Lylehill Road, TemplepatrickQ4 2013, 11.98 acres sold November 2013 for £2.575 million. This equates to £214,914 per acre. Planning permission granted in 2008 for 122 units
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THE HOTELS & LICENSED MARKETPAGE 19
Premier Inn Four Corners, Waring Street, BelfastQ4 2013: CBRE advised the purchaser (CBRE Global Investors) on the purchase of this property let to Premier Inn Limited for £9.025 million, reflecting a net initial yield of 6.3%
80
£
70
60
50
40
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02006 2007 2008 2009 2010 2011 2012 2013
Averaage Room Rate RevPar
Belfast Average Room Rates & RevPar 2006-2013
80
Occ
upan
cy %
70
60
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02006 2007 2008 2009 2010 2011 2012 2013
90
Belfast Hotel Occupancy 2006-2013
There were a number of hotel and pub properties traded in Northern Ireland in 2013 and while there are several hotel operators looking for opportunities in the Northern Ireland market at present, we expect to see a slowdown in the total number of pubs traded this year. While there has been an improvement in average room rates and occupancy rates over the last year, many entities are not profitable at current room rates and this is the biggest challenge for hoteliers in the Northern Ireland market.
Source for both charts: STR Global
MD, CBRE BELFASTBrian LaveryExecutive Directort: +44 (0)28 9043 6741e: [email protected]
AGENCY CONTACTS PAGE 20
VALUATIONSCiaran DonnellyDirectort: +44 (0)28 9043 6749e: [email protected]
Emma FletcherSenior Surveyort: +44 (0)28 9043 6743e: [email protected]
Steven ConwellSenior Surveyort: +44 (0)28 9043 6748e: [email protected]
PROFESSIONAL SERVICES Chris CallanSenior Directort: +44 (0)28 9043 6751e: [email protected]
Julie CathcartSurveyort: +44 (0)28 9043 6758e: [email protected]
David WrightDirectort: +44 (0)28 9043 6745e: [email protected]
Lisa McAteerAssociate Directort: +44 (0)28 9043 6753e: [email protected]
Alana CoyleAssociate Director - Retailt: +44 (0)28 9043 6927e: [email protected]
Richard HannaJunior Surveyort: +44 (0)28 9043 6925e: [email protected]
CAPITAL MARKETSGavin ElliottAssociate Directort: +44 (0)28 9043 6750e: [email protected]
Tim ReidAssociate Directort: +44 (0)28 9043 6752e: [email protected]
PROPERTY & ASSET MANAGEMENTGerard McCannDirectort: +44 (0)28 9043 6759e: [email protected]
Deborah CromieAssociate Directort: +44 (0)28 9043 6742e: [email protected]
Jenny McCormickSurveyort: +44 (0)28 9043 6746e: [email protected]
Paddy HenrySurveyort: +44 (0)28 9043 6744e: [email protected]
Joan Moore Account Managert: +44 (0)28 9043 8555e: [email protected]
BUILDING CONSULTANCYTony GrantDirectort: +353 1 618 5735e: [email protected]
Sean DohertySurveyort: +44 (0)28 9043 6928e: [email protected]
DEBT ADVISORYGuy HollisHead of Markets Developments EMEAt: +44 207 182 2656e: [email protected]
Andy TallonAssociate Directort: +44 207 182 2973e: [email protected]
RESEARCHMarie HuntExecutive Directort: +353 1 6185543e: [email protected]
Suzanne BarrettSenior Researchert: +353 1 6185738e: [email protected]
Elaine LinnaneData Base Project Managert: +353 1 6185794e: [email protected]
Christine McGowanGraduate Surveyort: +353 1 6185760e: [email protected]
Maggie Gleesont: +353 1 6185720e: [email protected]
RESEARCH CONTACTSPAGE 21
GLOBAL RESEARCH AND CONSULTING
This report was prepared by the CBRE Ireland Research Team which forms part of CBRE Global Research and Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.
DISCLAIMER 2014 CBRE
Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CBRE clients, and cannot be reproduced without prior written permission of CBRE Ireland.
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