Private equity investment boosts commercial property market in Northern Ireland

The value of commercial property investment in Northern Ireland reached pre-economic crisis levels in 2014, according to a new report from Savills Northern Ireland.

The emergence of private equity in the market resulted in approximately £500 million worth of commercial property deals completed by the end of the year, a 186% increase on 2013.

Retail investment was to the fore accounting for 88% or £440.27 million of all deals and according to Savills, resilient jobs growth and positive momentum in occupational markets, particularly in the retail sector, has resulted in attractive returns for investors.

Ben Turtle, a director of Savills Northern Ireland, expects this trend to continue in 2015. ‘One of the key drivers of investment activity has been rental growth and we expect both retail and office rents to increase this year,’ he said.

‘As a result, we see strong investor demand continuing into 2015 with £300 million of assets already scheduled for sale. This time last year that figure was £200 million,’ he added.

Key investment deals which took place in 2014 included; The Obel, Donegall Quay, Belfast, Shane Retail Park, Belfast and Cityside Retail Park, Belfast. Savills NI transacted 78% of all investment deals in 2014.

In the Belfast office market, Savills report that lettings in 2014 reached 348,500 square feet and were driven by improvements in the labour market, with private sector employment increasing by nearly 3.5% in the year to the third quarter of 2014.

‘This has resulted in a significant reduction in the availability of prime office space in Belfast and will result in continued rental increases this year. We estimate that approximately 500,000 square feet is currently required to meet occupational demand and it is expected that rents in the region of £183 per square meter will be agreed for deals in 2015,’ said Neal Morrison, a director of Savills Northern Ireland.

The report also says that a strong economic backdrop has led to resurgence in retail activity with a number of new entrants coming into the market, according to Savills. Fashion and footwear and food and catering dominated take up of retail space in 2014, accounting for 61% of all deals in the year.

‘Renewed consumer confidence is now beginning to be reflected in the retail property market.  While rents remain below peak levels and the supply of space exceeds demand, new entrants have started taking space in prime and secondary locations. With new arrivals across a variety of sectors, the broad based nature of the recovery is encouraging,’ explained Paul Wilson, a director of Savills Northern Ireland.

Looking ahead, Savills say the rating revaluation in April 2015 could have a significant impact with a reduction in rates expected. For example, Donegall Place could experience a reduction of between 40% and 50%. Savills expect that the revaluation will put Belfast on a competitive footing with other UK regions.

Limited supply of new housing development, in addition to strong demand, are expected to drive house prices higher in 2015. Reflecting this, banks are becoming increasingly willing to fund residential development, albeit with developer capital required.  In the medium term this should drive new residential development.

Savills sees continued demand from cash funded developers looking to acquire small infill development opportunities in popular provincial towns and attractive commuter locations.

Approximately 2.6 million square feet of industrial space was taken up in 2014, a 34% increase on 2013 and sales accounted for 75% of all transactions, up 50% on last year.

According to Savills, this reflects both the improvement in occupier confidence and the value for money that is currently available in the market.

Looking forward, in light of continued bank deleveraging and further economic growth, Savills anticipates strong levels of transactional activity in 2015 leading to a decline in vacancy rates.