QUARTER TWO 2016 Your Property. Our Business.

Transcription

1 QUARTER TWO 2016 Your Property. Our Business.

2 CONTENTS Table of contents 03 Introduction Investment Notable Investment Transactions 07 Currently On The Market 08 Office 09 Notable Office Take-Up Retail Industrial 14 The Team Behind The Research

3 INTRODUCTION Quarter See EU Later... Whether it s the stock, property or currency markets, they hate uncertainty....was one of the many the truly red-top worthy headlines splashed across the papers on June 24th It essentially stalls decision making and creates an environment of consolidation rather than investment and expansion. The opinion polls showed a narrow lead for remain in the run up to the election and many of us thought the leap into the unknown would be too much for the undecided and Remain would prevail. Commentators, economists and politicians will forecast, but this outcome is effectively unprecedented - and that is the crux of the issue. But, in the short term, the status quo remains. David Cameron will step down as Prime Minister ahead of the Tory party conference in October and hence the Government won t trigger Article 50 (the mechanism that allows for a member state to exit the EU) until the new PM is named. (Continued on page 5) 3

4 INVESTMENT The People Have Spoken Strong investment volumes in the first Quarter of the year were met by cautious optimism with the impending EU Referendum on the horizon. INVESTOR DECISIONS DELAYED UNCERTAINTY REIGNS DECLINED TRANSACTION RATES PRE-BREXIT As anticipated, many investors opted to delay decision making on the assumption that June 23rd would disperse Brexit driven uncertainty and bring further clarity to the economic landscape. This in turn led to a decline in investment transactions in Q2, reaching only 13.5m, with a further c. 49m on the market including Downe Retail Park, Lisnagelvin Shopping Centre and the Tower Centre in Ballymena.

5 Four greater Belfast Iceland Investments, let on co-terminus leases with 9 years unexpired have also recently come to market. We have also seen several sub 1m investments transact, which is not unsurprising as high net worth s search for viable investment options for their pensions in the midst of a historically low interest rate environment. In the wake of the vote to leave, the market has experienced a bit of a standstill with uncertainty stalling decision making. HOW THE VOTES STOOD See EU Later... (Continued from page 3) And even when triggered, the negotiation and practicalities of an exit will take around two years to work through, meaning that our exit is far from immediate. As such at this early stage it is impossible to predict our future arrangements on trading with the EU. REMAIN LEAVE 48.1% 51.9% BRITAIN VOTES LEAVE That said the fundamentals in our market remain strong, The supply/demand dynamics in our two most prominent commercial property sectors (office and retail) is good with a strong story around future rental growth in sustainable locations. Whatever the outcome, we are likely to experience a bit of a standstill until those investing see more certainty around the future business landscape. Whatever that landscape looks like, we need a clearer understanding of it - and quickly, with the hope being that those in charge who have been somewhat taken by surprise act promptly and decisively throughout what will be an uncertain Quarter 3. 5

6 INVESTMENT The residential market is performing well and despite a reduction in the house price index in Q1 the trajectory of the market remains positive, especially considering the fundamentals of our local residential market in relation to demand, and prices relative to their peak in Apartment sales in particular are encouraging, up 10.2% on Q and as a result there are a number of new developments making their way through planning. Another positive for our market is the number of cranes on the skyline building student accommodation and hotels. McAleer and Rushe continue to make great strides in this regard with 1,200 student bedrooms planned for sites at Mclintock Street and College Avenue while Beannchor s Bullitt is set to open in the autumn and will form part of the plethora of hotel developments to be delivered in the city centre. While developers are understandably taking stock following recent events, there is no indication that the aspirations or plans have changed. Planning applications continue to make their way through the process and developers remain committed to going to site. 6

7 CURRENTLY ON THE MARKET PROPERTY SECTOR ASKING PRICE M NIY STATUS Downe Retail Park Open Retail Park % Agreed Lisnagelvin Shopping Centre Shopping Centre % Agreed Tower Centre Shopping Centre % Available Foyle Chambers Office % Available Iceland Newtownards Road Retail % Available Iceland Antrim Road Retail % Available Iceland Finaghy Road Retail % Available Iceland Shankill Road Retail % Available NOTABLE INVESTMENT TRANSACTIONS PROPERTY SECTOR M NIY PURCHASER Avenue House Office % UK Fund Lesley Retail Park Open Retail Park % Sports Direct Carleton House Office % Private Investor *Off market transactions are not included 7

8 OFFICE The NI office market has built on its positive start to the year in Q1 and encouraging take-up figures for Q2 suggest that demand for Grade A stock remains strong. We are aware of c. 75,000 sq ft of space being taken up, bringing the total for the year to date (H1) to 235,000 sq ft, which is significantly higher than the same period (H2) in 2015 when 87,500 sq ft of activity was recorded. H1 OFFICE TAKE UP GRADE A DEMAND REMAINS STRONG SUPPLY LIMITED DEVELOPMENT PIPELINE UNABLE TO MEET DEMAND expect this to continue in the short term with the current development pipeline unable to meet demand. This will put further upwards pressure on rents and will continue to do so until they reach a level at which development becomes viable. 235,000 SQ FT 87,500 SQ FT Although Q2 has seemingly experienced a reduced level of activity on Q1, this is very much a function of limited supply rather than a lack of demand and we At this point it is difficult to see how office development will come forward until underlying rents reach 20psf plus and whilst there are signs of this, limited evidence is available and we need to see larger transactions happening. Notable requirements include the BBC who are seeking 120,000 sq ft of Grade A space and Deloitte who require 75,000 sq ft following their recent announcement to expand their operations in Northern Ireland. In the absence of suitable Grade A stock within the city, Deloitte are concentrating their attention

9 it is difficult to see how development will come foward until underlying office rents reach 20psf plus. on one development which has yet to break ground, namely Erskine House on Chichester Street and two developments which have yet to receive planning approval in that of Stargime s proposed 4 Queens Square which is planning 80,000sq ft on the former First Trust Bank site and phase 2 of McAleer and Rushe s Bedford Square which has the potential to offer 225,000 sq ft of space. In the short term, secondary refurbishment opportunities have the potential to bridge the gap while the development pipeline gathers momentum. Rhino have recently purchased the Lesley Buildings, a mixed use retail office scheme on Fountain Street, while Laganview House has just been brought to the market and this former Bank of Ireland premises could provide 11,000 sq ft of space. In addition to the above upcoming projects from Kilmona Holdings, McAleer & Rushe and Stargime are set to proceed on receipt of planning consents while Orby Investments look set to break ground soon at Erskine House on Chichester Street on Queens Square. NOTABLE OFFICE TAKE-UP OCCUPIER SIZE (SQ FT) LOCATION Citi 16,273 Donegall Square North, Belfast EY 11,000 Bedford House, Belfast ARUP 9,000 Bedford House, Belfast Shopkeep.com 7, Linenhall Street, Belfast

10 RETAIL The retail sector continues to enjoy a period of sustained growth and falling vacancy rates coupled with increased demand for prime city centre pitches is creating further upwards pressure in rents. Retailers taking space in city centre locations include Ecco Shoes who now occupy 1,500sq ft in Victoria Square Shopping Centre, Pandora s 1,664 sq ft mega store at Cornmarket and Greggs latest venture on Royal Avenue.

11 NOTABLE RETAIL TRANSACTIONS Ireland s first drive through coffee shop. The Seattle based firm are aiming to commence construction in October and could open before the end of the year. RETAILER LOCATION Specsavers Victoria Square, Belfast STA Travel Victoria Square, Belfast Ecco Victoria Square, Belfast Moss Bros Castle Lane, Belfast Patisserie Valerie Donegal Square West, Belfast Pandora Cornmarket, Belfast Greggs Royal Avenue, Belfast Bon Marche Abbeycentre, Newtownabbey Jack Jones Warren James Specsavers Abbeycentre, Newtownabbey Richmond Centre, Derry Bloomfield Centre, Bangor Despite the economic uncertainty driven by June s Brexit vote, demand from retail occupiers remains strong and while consumer confidence may have faltered, it has not disappeared. Encouragingly, we are also seeing significant transactions in out of town locations with Home Bargains at Holywood Exchange and Go Outdoors & Smyth s Toys at Valley Retail Park. The story is also positive for out of town shopping centre schemes with continued investment set to improve the offering to consumers. The Killultagh owned Connswater Shopping Centre in east Belfast has recently had planning granted for an expanded 23,000sq ft Lidl store while Starbucks are also gearing up to enter the scheme by providing Northern With a deficiency in supply we expect continued rental growth within this sector moving forward as retailers continue to vie for prime pitches on high streets and within the popular schemes. SUSTAINED GROWTH FALLING VACANCY UPWARD RENTAL PRESSURES 11

12 INDUSTRIAL Q2 has experienced a significant increase in uptake on Q1 with strong demand for space in Belfast and mid-ulster. STRONG TRANSACTION VOLUMES There have been a number of notable transactions involving larger units over 50,000 sq ft which we did not see at all in Q1. SUSTAINED DEMAND BREXIT MAY STALL Q2 INVESTMENT ACTIVITY McMullan facades have leased c. 96,000 sq ft. in Portadown for a state of the art manufacturing facility which is three times the size of their current premises and this will in turn increase their workforce. 12

13 Q2 has experienced a significant increase in uptake on Q1 with strong demand for space in Belfast and mid-ulster. Similarity, MJM Group have significant expansion plans with their purchase of the former Shankleton Barracks military base in Ballykelly, Co. Londonderry which will be used for fitting out private jets. In what is certainly a positive move for the industrial market and a sign of returning confidence, Sloefield Business Park in Carrickfergus have undertaken a speculative build of 2 units which will offer 10,000 sq ft of space in the autumn, one of which has now been agreed. Moving forward demand remains high for larger space and we hope to see more Moving forward, demand remains high for larger space... In addition, we are aware of a number of industrial investments which have recently been agreed and experienced strong bidding which has been a rarity in this sector of late. speculative build projects to adding some much needed supply to what has been an encouraging quarter. NOTABLE INDUSTRIAL TRANSACTIONS OCCUPIER LOCATION SIZE TYPE Yello Kilroot Business Park, Carrickfergus 21,000 Sq Ft Lease Amazon Kilroot Business Park, Carrickfergus 28,000 Sq Ft Lease McMullan Facades Ltd McMahon Industrial Estate, Portadown 96,000 Sq Ft Lease MJM Group Shackelton Industrial Estate, Ballykelly 745,000* Sq Ft Sale *Total Space

14 THE TEAM Behind the research DECLAN FLYNN NICKY FINNIESTON DAVID MCNELLIS Managing Director Director (Retail & Investment) Director (Agency) ANDREW GAWLEY STEPHEN CHAMBERS AOIFE BRENNAN Associate Director (Agency) Associate Director (Investment & Finance) Divisional Director (Research Division) 14

15 Your Property. Our Business.

16 LISNEY NORTHERN IRELAND 1st Floor Montgomery House Montgomery Street, Belfast, BT1 4NX