Northern Ireland CommercialProperty Report 2013

The Lisney Northern Ireland Commercial Property Report is now in its thirdyear and is the most comprehensive commercial property study in NorthernIreland.

As in previous years, this report reviews the state of the local market withinthe Industrial, Investment, Office and Retail sectors and provides commenton what the future may hold.

Our 2013 research has highlighted that Property Investment transactions inNorthern Ireland have increased six fold over the last two years, albeit from a low base and withoccupier demand stable it would appear that the fundamentals for a sustainable recovery in theproperty market are in place.

These transactions have primarily been undertaken by UK based institutions in the prime retailsector where demand now outstrips supply. As a result of this lack of supply, attention is nowfirmly on more secondary properties where there are obvious opportunities to create value. Itwill be interesting to see the level of transactions in this sector in the months ahead.

Despite our obvious optimism there are a number of hurdles to cross before we will seetransaction levels return to normal.

We previously voiced our concerns with regard to the potential lack of supply of Grade A officespace and the effect that this will have on our wider economy should Northern Ireland becomeunable to provide suitable accommodation for multi-nationals. Our concerns are now a realitywith vacancy levels of 5% and falling.

Lack of finance in general and specifically development finance is still an issue and there maybe a need for Stormont to intervene in the market to help bring forward the office developmentpipeline to enhance their stated job creation aims. The demand for new Grade A office space isevident but without the appropriate supply in place to meet this demand, we will undoubtedlysee competition for the space that does remain resulting in increased rents within the sector.

On the retail front we have seen a level of stability return to the market in the last 12 monthsand with consumer confidence rising we can predict this stability will continue in 2014.

The next 12 months will undoubtedly herald further change in our market place in unexpecteddirections, however we at Lisney believe that the change will be positive and therefore lookforward to the months ahead.

Declan Flynn BSc (Hons) MRICSManaging Director, Lisney Belfast

F o r e w o r d

Office

• All office space/units surveyed were above1000 sq. ft.

• All Grade A and Grade B office stock wasconsidered. Grade C stock was excluded.

• Research covers all available office premiseson Lisney’s database.

• Historic Grade A and B stock figures wereobtained from a report published by theValuation and Lands Agency (Land andProperty Services) in 2006.

• Within this section an SME is defined as acompany with a turnover of no more than£6.5million and less than 50 employees(Companies Act 2006).

Industrial

To assess the percentage of available units,evaluate trends and compare to nationalstatistics, a survey was carried out from asample of 3 prominent industrial locations inNorthern Ireland.

The locations chosen were Duncrue/Dargan,Mallusk and Newry (Carnbane and GreenbankIndustrial Estates). Having surveyed thelocations, the vacant units comprise propertiesthat are openly marketed as available.

The following categories are exempt: propertiesthat are derelict; other property uses within thelocations that would not formally fall withinclasses B2, B3 and B4 of the Planning (UseClasses) Order (Northern Ireland) 2004, toinclude educational and sporting facilities,purely office properties, restaurants/ retailshops, etc.

Retail

The Retail data used within this document wascompiled from a sample of 17 towns and citiesacross Northern Ireland which were surveyedduring July and August 2013.

The sample comprised of: Antrim, Ballymena,Bangor, Belfast, Coleraine, Cookstown,Craigavon, Enniskillen, Lisburn, Londonderry,Magherafelt, Newry, Newtownabbey,Newtownards, Omagh, Portadown andStrabane.

Having surveyed the prime, secondary andmajor out of town sites across the sample,vacant unit numbers were made up ofproperties that were unoccupied.

The following categories are excluded:properties that are derelict; bars or publichouses; licensed restaurants; ground flooroffices that do not have a public entrance; outof town fast food outlets and properties that arenot considered to be in prime or secondarypositions. Prime and secondary pitches havebeen classed as such according to Lisney’sretail team.

M e t h o d o l o g y

Investment Update

Transaction Volumes See 6 Fold Increase Since 2011 Overview

2012 and 2013 have seen an encouraging uplift intotal investment volumes locally despite a significantdownturn in Northern Ireland’s Commercial Propertymarket due to difficulties in the economy and bankingsectors over the last number of years.

To date, the total assets sold, under offer or brought tomarket in 2013 exceeds £150 million. Whilstremaining low compared to Great Britain, this is doublethe total transaction volume for 2012, which was c.£75 million, and 6 times that of 2011 (c. £25 million).

This has been followed by a further increase intransactional activity levels and availability of betterinvestment property in 2013 and, mirrored by positiveactivity within the residential development market, is aclear indication that a market recovery may finally beunderway within the Northern Ireland CommercialProperty market. For the first time in a number ofyears demand, particularly from institutional investors,is outstripping supply in the investment market with anumber of bidders being new entrants to the NorthernIreland Property market.

Notable Transactions

Notable retail transactions in the last 2 months haveincluded the purchase of Tesco, Newry by ScottishWidows Investment Partnership for £30.30 million, thepurchase of Tesco, Craigavon by British Land for£23.50 million and the purchase of B&Q, Craigavon byCordea Savills for £11.90 million. In addition, Lisneyadvised on the sale of Springhill Retail Park, Bangor toPradera/Brockton for £10.45 million and ClandeboyeRetail Park, Bangor which was sold to Threadneedlefor £7.13 million.

Office investments recently sold include the Invest NIHeadquarters on Bedford Street which was sold to theNorthern Ireland Government for a reported £17million, Scottish Mutual Building, Donegall SquareSouth Belfast, which will be converted into a hotelfollowing its £2 million sale and Killeaton HouseDerriaghy which was sold to a private investor for£2.33 million.

Notable Investment transactions in Northern Irelandsince the beginning of 2012 include the following:

www.lisney.com

Property Type Price £m Yield Date Comments Purchaser

Tesco, HighfieldRoad, Craigavon

Foodstore £23.50m 5.60% Oct 2013 121,000 sq ft foodstore let to Tesco on a 25 year lease from2010 with a break in years 15 & 20. The lease is subject toRPI reviews (no cap or collar)

British Land

Tesco, DownshireRoad, Newry

Foodstore £30.30m 4.95% Oct 2013 93,000 sq ft foodstore let to Tesco for 25 years with a breakin year 20 and fixed uplifts on review – 1% & 3%

Scottish WidowsInvestmentPartnership

B&Q, Highfield Road,Craigavon

RetailWarehouse

£11.90m 7.95% Oct 2013 86,620 sq ft open A1 retail warehouse let to B&Q for afurther 13 years

Cordea Savills

Law Society House,Belfast

Office £4.25m 10.12% Oct 2013 49,913 sq ft office building. 65% of income secured againstGovernment Tenant

Private Investor

Springhill Retail Park,Bangor

RetailWarehouse

£10.45m 9.30% Sept 2013 Open A1 retail park let to Next, New Look, Heatons,Starbucks, Poundstretcher and B&M Bargains

Pradera/BrocktonCapital

Invest NorthernIreland HQ, BedfordStreet, Belfast

Office £17.00m N/A Aug 2013 130,000 sq ft office building. It is understood that NIGovernment acquired shares in holding company

Northern IrelandGovernment

Orritor Road RetailPark, Cookstown

RetailWarehouse

£10.20m 9% Aug 2013 Open consent retail park. Tenants include Marks & Spencer,New Look, Next, Peacocks and B&M Bargains

British AerospacePension Fund

Clandeboye RetailPark, Bangor

RetailWarehouse

£7.13m 15% May 2013 112,000 sq ft bulky good retail park let to Currys, PC World,Carpetright, Harveys and Halfords

Threadneedle

Sainsbury’s, LarneRoad Link, Ballymena

Foodstore £17.85m 5.16% Jan 2013 60,777 sq ft. foodstore let to Sainsbury’s for 25 years withfixed uplifts – 1% & 4%

La Salle InvestmentManagement

Tesco, Main Street,Limavady

Foodstore £6.26m 5.83% Sept 2012 36,313 sq ft foodstore let to Tesco on a lease expiring in2031

CBRE Investors

Sainsbury’s, StrandRoad, Londonderry

Foodstore £18.2m 5.71% June 2012 71,000 sq ft. foodstore let to Sainsbury’s for a further 12.5years

La Salle InvestmentManagement

B & Q, Faustina RetailPark, Londonderry

RetailWarehouse

£17.4m 7.5% May 2012 102,000 sq ft. retail warehouse let to B & Q for a further 18years

Metric PropertyInvestment Plc

Tesco, Bentrim Road,Lisburn

Foodstore £30.4m 4.97% Feb 2012 85,119 sq ft. Tesco – Sale and Leaseback La Salle InvestmentManagement

Overview

Completed transactionvolumes hit £135 millionfor the year to date

Trends

Increased number ofinstitutional investors

Yields improving

Outlook

Increased demand frominstitutional investors

Turnover should top £150million for 2013

3rd Quarter 2013

www.lisney.com

Increased Institutional Investment for Retail

What is evident from the sales through2013 is the strength and depth of theinstitutional investor pool particularly as it isunderstood that there was competitivebidding from institutional investors on anumber of these assets.

It is clear that there is a demand fromInstitutional Investors for retail investmentsand foodstores in particular which haveaccounted for 82% and 72% respectively ofall investments transacted to date this year.

This follows on from 2012 where retailinvestments accounted for almost 95% ofall investment sales. Again these purchaserswere all Institutional Investors.

Republic of Ireland Investors

An interesting dynamic in the local investmentmarket is the number of bidders that haveemerged from the Republic of Ireland,particularly within the £1-£3 million lot sizebracket.

Lisney believes this is being driven by theweight of money chasing investmentopportunities in Ireland. Total investment intoproperty for the year to date in the Republic ofIreland has exceeded €1 billion with totalavailability currently standing at circa €630million.

The total investment volumes for 2013 areexpected to be more than double that in 2012and investors are therefore being forced to lookelsewhere for opportunities including NorthernIreland. An example of this is an officeinvestment on Belfast’s Dublin Road which was

on the market for £1.10 million and sold for£1.30 million with 4 out of the 6 biddersunderstood to be from the Republic of Ireland.

Outlook

There are a number of other investmentsales which should complete before the endof 2013 and a number of other propertiesdue to be brought to the market early nextyear. With continuing investor interestLisney predicts this positive sentiment willcontinue through 2014.

After many years of investor and bankilliquidity it appears that we are moving intoa more liquid and stabilised market which islikely to be dominated by institutionalinvestors. This will only help to acceleratethe recovery of the commercial propertymarket within Northern Ireland.

BELFAST1st Floor Montgomery House, 29-33 Montgomery Street, Belfast,BT1 4NXT: +44 2890 501 501E: property@lisney-belfast.com

DUBLIN24 St. Stephen’s GreenDublin 2T: +353 1 638 2700E: dublin@lisney.com

CORK1 South MallCorkT: +353 21 427 5079E: cork@lisney.com

LISNEY INVESTMENT TEAM LISNEY OFFICES

Andrew Marsden BSc (Hons) MRICST: +44 2890 501 514

M: 07803 000014E: amarsden@lisney-belfast.com

Lloyd Hannigan BSc (Hons) MRICST: +44 2890 501 518

M: 07834 451 488E: lhannigan@lisney-belfast.com

Springhill Retail Park, Bangor – Sold by Lisney Clandeboye Retail Park, Bangor – Sold by Lisney

Retail Update

Empty Retail Units StabilisingOverview

The occupancy rate for shops in Northern Ireland looksto have stabilised with no noted increase in thepercentage of empty retail units between 2012 and2013.

Extensive research by Lisney has revealed that 19% ofshops lie vacant in Northern Ireland. This compares tothe UK average of 11.1%, 10.1% in Scotland and15.9% in Wales (figures according to the British RetailConsortium Footfall & Vacancies Monitor for July 2012).

Whilst the number of vacant shops is now stabilising(the previous year saw an increase of 4.6% in emptyshops) this is not necessarily the full picture as therehave been a number of winners and losers which ourgraph details.

Belfast has shown a marked improvement with overallvacancies down 5.9% to 17.2% overall. Other townsthat have improved from last year include Enniskillen,Coleraine, Derry, Craigavon, Magherafelt, Newtownardsand Portadown. Towns with more empty shops than lastyear’s research include Bangor, Ballymena, Omagh andNewtownabbey.

Both secondary and out of town retailing locations haveimproved over all, secondary locations by 0.6% to22.1% and out of town by an impressive 3.5% to13.6%. Where there is further deterioration is withinprime city centre retail locations with vacancy ratesrising by 1.7% to 17.1% overall.

Prime pitches deterioration

Business Rates continues to be the primary factor fordeterioration in the level of occupancy on the primepitch at present.

Retailers are looking at affordability in their overalloccupancy costs and will more readily locate in out oftown or even more secondary locations where businessrates are not so prohibitive.

Lisney hopes that the Rates Revaluation scheduled totake effect in April 2015 will go some way to improvingthe situation should it, as expected, lead to reduction inBusiness Rates in the prime retailing locations.

A number of the main national and multi nationalretailers who have been the mainstay of NorthernIreland’s shopping centres and high streets are cuttingback on the number of stores that they need,concentrating on fewer but better stores.

As leases come to an end some of the big High Streetnames are closing stores, most noteably Arcadia whohave closed or are in the process of closing a number ofshops from their portfolio of fashion facias, includingmost recently Dorothy Perkins, Burtons and Evans atForestside Shopping Centre in Belfast.

www.lisney.com

Retail Sales

2.2% y/y increasefor September

Activity

Few new entrantsbut increased levelof activity

Availability

19% of retail unitsempty, butstabilising y/y

Belfast

Newry

Londonderry

Lisburn

Enniskillen

Ballymena

Coleraine

Omagh

Craigavon

Portadown

Bangor

Newtownards

Cookstown

Antrim

Strabane

Newtownabbey

Magherafelt

3.6

14.516.5

12.6 12.9 12.611.0

27.2

19.6

16.4

22.821.6

16.9

25.7 25.0

22.2

17.2

10.39.1

12.0 12.213.3

15.216.9 17.2

18.3 18.720.0 20.8 21.2 21.8 22.5 22.7 23.1

20132012

Northern Ireland Total Retail Vacancy by Location (%)

3rd Quarter 2013

Rents

Yields

Demand

Supply

www.lisney.com

eRetailing

One of the main reasons for retailers cuttingback on the size of their estates is thecontinued growth in online retail sales.

eRetail now accounts for around 10-12% ofall UK retail sales. Although year on yeargrowth is slowing down slightly it still showedaround 15% growth in year to August 2013compared to the same period in 2012,according to the IMRG Capgemini eRetailSales Index.

The growth in online shopping habits doesnot however mean the death of the HighStreet.

Far from it.

Whilst online sales are increasing so too is‘click and collect’ where consumers orderonline but visit the store to collect theirgoods. eBay, the popular online retailer, hasrecently announced that it was joining forceswith Argos to trial ‘click and collect’ servicesallowing their customers to purchaseproducts from around 50 eBay merchantsand pick them up at Argos stores throughoutthe UK.

An online retailer moving into shops is goodnews for the market.

Increasing Consumer Confidence

As the housing market starts to show theearly stages of recovery and the newGovernor of the Bank of England pledging tokeep interest rates at a record low for atleast 3 years, consumer confidence is onthe rise. In fact consumer confidence is at asix year high, according to market researchcompany GfK.

This increase in consumer confidence will nodoubt lead to increased consumer spendingand that should have a positive effect onretailers and the high street as a whole.

Activity

Whilst there are without doubt far fewerretailers actively looking for stores inNorthern Ireland than elsewhere in the UK,2013 has seen a reasonable level of activityacross the board so far.

There hasn’t been a high number of fashionretailers opening stores with the exception ofH&M with new stores in Bangor, Lisburnand Derry, Blue Inc in a number of locationsthroughout the Province including mostrecently Forestside and Officers Clubopening their first NI stores in Newry andDerry. However, there has been someactivity in the sports market with SportsDirect, Lifestyle Sports and Matalan’s newSporting Pro brand all active within the localmarket.

The discounters are still particularly activewith the likes of Home Bargains,Poundworld and Poundstretcher all takingnew stores across the Province. There hasalso been some activity within the restaurantand coffee shop market where we haveseen Prezzo, Nandos, Frankie and Bennysand Caffe Nero taking new stores and withvery definite requirements for more.

Outwith those retailers with generic roll outrequirements there has also been somechurn of lease regears, relocations, upsizes,downsizes and temporary/seasonal lettings.

Outlook

Whilst the Northern Irish retail propertymarket is undoubtedly still a challengingenvironment and rents are still underpressure, we are hopeful that with vacancylevels stabilising and consumer confidenceon the up we should continue to see someactivity and demand for good space.

BELFAST1st Floor Montgomery House, 29-33 Montgomery Street, Belfast,BT1 4NXT: +44 2890 501 501E: property@lisney-belfast.com

DUBLIN24 St. Stephen’s GreenDublin 2T: +353 1 638 2700E: dublin@lisney.com

CORK1 South MallCorkT: +353 21 427 5079E: cork@lisney.com

LISNEY RETAIL TEAM LISNEY OFFICES

Nicky FinniestonT: +44 2890 501 501M: 07771 988 007E: nfinnieston@lisney-belfast.com

Lloyd Hannigan BSc (Hons) MRICST: +44 2890 501 518M: 07834 451 488E: lhannigan@lisney-belfast.com

22.1

Secondary In TownPrime In Town

13.67

17.31

Out of Town

Availability (%) By Pitch

17.19

22.8

15.5

20132012

Lifestyle Sports new 11,000 sq ft store in Richmond Centre, Londonderry

Industrial Update

Industrial Vacancy Levels Marginally DecreasingVacancy rates in Northern Ireland are decreasingand now stand at 13%, compared to 16% lastyear and 14% in 2011. This is lower than thecurrent Dublin average of 19%1, but marginallyhigher than the current UK average of 12.4%2.Further stimulus is still required to promoteinward investment.

Findings

Demand remains low, as does the availability ofbuildings of the size required to fulfil potentialdemand. Whilst units of less than 10,000 square feet(sq. ft.) have become increasingly available since2012, units from 10,000 – 50,000 sq. ft. arereducing and units over 50,000 sq. ft. are extremelylimited. In the locations surveyed, less than 1% ofunits were of this size.

Once again, Mallusk has the highest vacancy rate of19%, down from 24% in 2012 and 21% in 2011,and for the third year running Newry has the lowestvacancy rate of 6%, down from 10% in 2012. Thereremains to be virtually no availability at Carnbane,Newry’s major industrial location.

The industrial land at Carnbane, purchased by InvestNI for further development, is currently on the marketfor sale, however no sites have been agreed to date.

While all the locations surveyed have seen the currentavailability fall, this does include properties that havebeen sold, taken off the market and short termlicence agreements to cover outgoing costs.

Market Demand

Since 2011, demand has mainly been generated fromwithin the local market, with existing occupiersrelocating or regearing existing lease terms withLandlords, rather than new entrants from UK or eventhe Republic of Ireland.

Of approximately 500,000 sq. ft. of requirements in2012, all were from local companies.

Since then, approximately 300,000 sq. ft. of theserequirements have been satisfied with notable deals

from Wrightbus and Whale. We are currently aware ofapproximately 650,000 sq. ft. of live requirements,the majority of which are less than 50,000 sq. ft.

An increase in demand for purchases from owneroccupiers with established trading businesses issignificant, with instances of competitive bidding tosecure properties taking place. One reason formultiple bidders is the lack of supply, particularly on afreehold basis.

The export sectors are particularly strong, especiallythe food & drink industry. While no speculativebuilding is ongoing, owner occupiers are extendingtheir premises to include CDEnviro in Cookstown,MJM Group in Newry and the recent announcementthat Telestack in Omagh are to extend their premises.

As an aside, there remains to be a number of activerequirements from Renewable Energy users lookingfor industrial zoned land. However this is at extremelylow values.

www.lisney.com

Trends

Increase in owneroccupier purchases

Availability

Supply reducing

Outlook

Freehold purchasesincrease

3rd Quarter 2013

Rents

Yields

Demand

Supply

% of available space by Sq Ft

77%Less than10,000 sq.ft.

22%10,000-50,000sq.ft.

1%Over 50,000sq.ft.

Based on:1. Lisney Dublin findings2. The Gerald Eve Prime Logistics Spring 2013 Bulletin, “The availability rate of all qualities of building – that is, availablefloorspace as a percentage of total standing stock”

Issues

• It is still the case that the price achieved forindustrial buildings is considerably lower thanthe combined land and build costs.

• Properties available For Sale are believed tobe ‘forced sales’ by the market, thus lowoffers are received.

• Due to the lack of available funding there islittle development taking place and we do notexpect this to change in the near future.

• Total occupancy costs remain a major factorand properties with high ground rents,service charges and rates can pose problemsfor Landlords/Vendors, thus impacting on theactual rent / price achievable.

• Tenants can currently obtain buildings from£1 per sq. ft. with short, flexible leases andfunding for development cannot be obtainedon these terms.

• For a feasible development, rents in theregion of £4.50 - £5 per sq. ft. are required.

Rating Revaluation 2015

The “Non Domestic” Rating Revaluation inNorthern Ireland will take place in April 2015,affecting some 72,500 commercial propertiesand it will be based on 2013 rental values. Thepurpose is to redistribute the revenue burdenrestoring “fairness” amongst commercialratepayers.

The last Revaluation took place in NI in 2003and was based on rental values in 2001 - themarket and values have changed significantly inthe interim. The process of Revaluation in NIhas started with (online) detailed Forms ofReturn being sent to occupiers. The accurateanalysis of those Returns will be crucial to theRevaluation.

Manufacturing companies occupying“qualifying” industrial properties (there are about5,500 such properties in NI) continue to benefitfrom industrial relief under current legislation,paying 30% of full rates, a concession notmade in other parts of the UK but regarded asabsolutely necessary to our economic recoveryby many in the business community in NorthernIreland.

Outlook

Options for inward investment and potentialexpansion of local companies remains limitedas there is still a shortage of building availability,particularly units over 50,000 sq. ft.

Corporation Tax remains an issue particularlywhen we are competing with occupiers who areprepared to locate anywhere in Ireland.Reduced Corporation Tax would undoubtedlystimulate demand and inward investment in thissector.

The Rates Revaluation 2015 will be challengingbut the objective of rebalancing the ratesburden across the commercial market isnecessary and well overdue.

An increase in the number of purchasers isevident but properties available on a Freeholdbasis are difficult to obtain and total occupancycosts are still a major issue for occupiers.

www.lisney.com

Andrew Gawley BA (Hons) MRICS

T: +44 2890 501 552M: 07917 007 522E: agawley@lisney-belfast.com

David McNellis BSc (Est Man), MRICS

T: +44 2890 501 551M: 07887 911 077E: dmcnellis@lisney-belfast.com

BELFAST1st Floor Montgomery House, 29-33 Montgomery Street, Belfast,BT1 4NXT: +44 2890 501 501E: property@lisney-belfast.com

DUBLIN24 St. Stephen’s GreenDublin 2T: +353 1 638 2700E: dublin@lisney.com

CORK1 South MallCorkT: +353 21 427 5079E: cork@lisney.com

LISNEY INDUSTRIAL TEAM LISNEY OFFICES

% Floorspace Availabilty as of August 2013

% Floorspace Availabililty 2011-2013 2011 2012 2013

Mallusk Dargan / Duncrue Newry NIAverage

UKAverage

21%

13% 13%

24%

6%

10%

6%

12% 13% 12%

19% 19%

14%16% 16%16% 17%17%

12.4%13.00%

6%

11.65%

19.00%

Dublin Average

Mallusk Dargan / Duncrue Newry (Carnbane& Greenbank)

AverageAvailability

UKComparative

Office Update

More Office Stock Required To Fulfil Demand

www.lisney.com

Activity

Rising

Availability

Falling

New Construction

Restricted

Lanyon Plaza acquired byDepartment for Finance and

Personnel

Overview

Previous Lisney research in relation to the Office marketwithin Belfast City Centre (2011 and 2012) highlighteda possible shortage of Grade A space in the city centrein the not too distant future.

That possibility is now a reality with the Grade AVacancy rate currently at just 5% and falling. Based onthe recent take up figures, there is less than one year’ssupply of Grade A offices in Belfast City Centre.

Steady take up since 2011/12 and no new supplycreated by development means there is virtually no newstock available for leasehold occupation.

2013 has seen an increase in freehold activity asproduct becomes available through a number of highprofile administrations or Sale and Leasebacks.Demand for the latter has come primarily from theinstitutions.

Transactions

Office take up in 2013 has seen an increase fromprevious years with 150,000 sq. ft. in 2011 and264,000 sq. ft. in 2012.

In the 12 month period ending September 2013, a totalof 357,000 sq. ft. was transacted.

A significant deal within this period was that of theDepartment of Finance and Personnel’s acquisition ofLanyon Plaza, totalling 98,000 sq. ft.however, as ageneral point, the dominance of government in theBelfast office market is diminishing.

Demand, Vacancy and Value

With broader economic recovery, take up is likely togrow to levels seen prior to the recession of recentyears. However, as there is currently no development inthe pipeline, there are serious questions being askednow as to whether Belfast can satisfy this demandespecially in the context of Foreign Direct Investment.

Demand in the most recent period has been identifiedfrom within IT, Legal and Financial sectors.

Due to a much publicised lack of bank finance the officeowner occupier market has become effectively stagnantoutside the distressed product stock. Previously theseacquisitions were mainly implemented by the privatepension funds of the SMEs themselves.

Of the total vacancy (913,722 sq. ft.), 250,745 sq. ft.of this is classified as Grade A stock and 662,977 sq.ft. is classified as Grade B. We are aware that at least40% of the vacant Grade A stock is under activenegotiation and of all the available Grade A stock, only42,000 sq. ft. has been previously unoccupied. AverageGrade A quoting rents are currently £12.50 per sq. ft.(psf) which is broadly similar to our previous reports in2011 and 2012. Notably, capital values with vacantpossession have shifted significantly with a number oftransactions for previously occupied space having beentransacted in the range £50 - £75 psf.

In addition to the questions raised over adequateavailability of Grade A stock, there are constraints withinthe available stock. For example, many of the occupiersrequire large floor plates (larger than 10,000 sq. ft.).This stock is extremely limited with the majority ofavailable space in the range of 2-5,000 sq. ft.

3rd Quarter 2013

Rents

Yields

Demand

Supply

Impact of City Centre Shortage

It will take around 12-24 months to providenew stock. With limited development financeavailable it is unlikely that stock levels willimprove in the near future despite planningpermission for c.2m sq. ft. currently inexistence. There are very few developersfinancially able to go on site speculatively. Onemajor exception is the Belfast HarbourCommissioners who have just received planningapproval for phase 1 of their City QuaysScheme totalling 70,000 sq ft. Constructionwork is due to commence imminently.

In order to justify new site acquisition andconstruction and to drive a satisfactory level ofreturn for the developer who is taking the risk,rents need to be above the current levels.

Without the prospect of new stock it is likelyrefurbishment activity will become part of themarket. This could be stimulated by thepresence of a tax incentive known as BPRA(Business Premises Renovation Allowance),although to date there is little evidence of thisbeing utilised by developers as fundingavailability generally remains uncertain.

There has been recent press speculation thatthe IDA (Industrial Development Agency) in theRepublic of Ireland may invest in thedevelopment of Grade A offices if the currentshortage continues. Perhaps there is a case forInvest NI to consider?

Outlook

Lisney predicts that basic demand and supplywill interact in the near future to create a pinchpoint. Vacancy rates are falling, demand issteady, if not growing so conditions arechanging. This pressure could result in risingrents and reduced incentive packages.

The current stock does not provide muchchoice for occupiers, which is what is required,particularly by the large corporates from outsideof Northern Ireland. This lack of supply couldaffect the attractiveness of Northern Ireland asa whole. To attract and retain importantoccupiers, more options must be provided.

www.lisney.com

Andrew Gawley BA (Hons) MRICS

T: +44 2890 501 552M: 07917 007 522E: agawley@lisney-belfast.com

David McNellis BSc (Est Man), MRICS

T: +44 2890 501 551M: 07887 911 077E: dmcnellis@lisney-belfast.com

BELFAST1st Floor Montgomery House, 29-33 Montgomery Street, Belfast,BT1 4NXT: +44 2890 501 501E: property@lisney-belfast.com

DUBLIN24 St. Stephen’s GreenDublin 2T: +353 1 638 2700E: dublin@lisney.com

CORK1 South MallCorkT: +353 21 427 5079E: cork@lisney.com

LISNEY OFFICE TEAM LISNEY OFFICES

Comparative City Analysis - Overall* Annual Take-Up 2012 v 2013 (000’s sq. ft.)

Comparative City Analysis – Annual Vacancy Rates, 2011-2013 (000's sq.ft)

DDeeffiinniittiioonnssGGrraaddee AA – Modern fully fitted, air conditioned. Within this report (unlike some reports for comparative cities)Grade A includes occupied and previously unoccupied stock.GGrraaddee BB – Functional, not air conditioned.

Cardiff Glasgow Dublin Belfast

Cardiff Glasgow Dublin Belfast

264276

639

1,765

357

635

380

1,645

10.81% 11.20%

14.06%

17.70%

10.30%

15.20%16.10%

6.70%11.20%

15.20%

16.10%

5.0%

2011 2012 2013 YTD

Total Grade A Grade B

1,010ksq.ft.

441ksq.ft.

569ksq.ft.

1,016ksq.ft. 914k

sq.ft.

330ksq.ft. 251k

sq.ft.

689ksq.ft. 663k

sq.ft.

*NB Overall includes City Centre and suburban

Belfast - Vacancy Levels 2011-2013 2011 2012 2013

Lisney is the largest independent firm of commercial propertyconsultants in Ireland. For nearly 80 years, Lisney has earned areputation for service excellence, unequalled in the industry.

At the forefront of commercial real estate in Northern Ireland,Lisney is an independently owned and operated member of theCushman and Wakefield Alliance that delivers value and results forall clients.

Specialising in office, retail, leisure and industrial propertyacquisition, disposal and investment, Lisney Belfast providesclients with the best advice and service surpassing theirexpectations.

Working closely with Lisney offices located in Dublin and Cork andthrough its global affiliation with Cushman & Wakefield, Lisneypromises comprehensive knowledge and unrivalled expertise in arapidly changing market.

A b o u t U s

BELFAST1st Floor Montgomery House, 29-33 Montgomery Street, Belfast,BT1 4NXT: +44 2890 501 501E: property@lisney-belfast.com

DUBLIN24 St. Stephen’s GreenDublin 2T: +353 1 638 2700E: dublin@lisney.com

CORK1 South MallCorkT: +353 21 427 5079E: cork@lisney.com

LISNEY OFFICES

dependabilityreliabilityprofitabilityviability