COMMERCIAL PROPERTY MARKET FIGHTING HARD TO EMERGE FROM THE MALAISE
09 August 2013Increasing levels of transactional activity and better quality product attracting purchasers appear to be the first indications that the transition from recession to recovery may finally be underway within the commercial property market. However, the picture remains partly skewed featuring areas of disappointing market response and, in particular, limited occupier demand across most sectors, which remains a key impediment to recovery.
The most positive activity so far in 2013 has been in the investment market with a number of significant transactions finalised such as LaSalle’s purchase of Sainsbury’s, Ballymena, for £17.85 million on behalf of the Northern Ireland Local Government Officers Superannuation Committee. More recently, Bedford Hotels Ltd, owners of Galgorm Resort & Spa, completed the purchase of Scottish Mutual Building at Donegall Square North, Belfast. At the time of writing, Clandeboye Retail Park, Bangor has been agreed for sale to a UK property company and Linen Green, Dungannon, is also generating considerable local interest. It is extremely encouraging to see the range of potential purchasers both from within Northern Ireland and across the UK and we expect further sales activity in the second half of the year.
The retail market continues to fight its battles with the recessionary drop in retail spending compounded by issues as diverse as the poor summer weather, flag protests earlier in the year and companies either going into administration or closing down completely. The key feature in the retail sector is the lack of active requirements making it difficult to fill vacancies and reinvigorate retail centres quickly. This is more relevant to town centre and shopping centre locations with the out-of- town centres filling vacancies more effectively. The discounters continue to dominate activity with Home Bargains in particular pushing ahead with store openings.
The office market has experienced a disappointing level of occupier demand with only 32,000 sq ft leased during the first three months of 2013. On a more positive note, a number of large office lettings are in the pipeline including Land & Property Services’ proposed move to Lanyon Place that will involve taking office space of around 90,000 sq ft. Key concerns within the Belfast city centre office market focus on the availability of Grade A stock, particularly as no Grade A stock is under construction currently, and accommodation available for letting immediately. Although rental levels for prime Grade A stock remain at c. £12.50 - £13.00 per sq ft, the lack of space available on the market is likely to result in upward pressure on rents in the short to medium term.
The industrial property market remains depressed with limited transactional activity driven by end-user demand for specific investment product or project needs. The industrial warehouse sector has had another difficult year with the purchase of warehouse units at an all-time low. Lettings have been reasonable albeit it is clearly a tenants’ market as landlords reduce rents to retain tenants and offer attractive deals to new tenants. Capital values for larger warehouses are achieving £10 per sq ft to £30 per sq while new-build, smaller units in traditional warehouse locations are achieving £20-50 per sq ft.
The licensed trade continues to face extremely challenging conditions and the number of pubs coming to the market shows no sign of diminishing. Despite these difficulties, we have established ourselves as clear market leaders in this sector and have been involved in a number of recent sales, which demonstrate that demand clearly exists in the right location. Although the licensed market remains extremely testing, it would appear that conditions are stabilising and that buyers are willing to get involved but only by adopting a realistic view with regard to value.
There is no doubt that the market still has many hurdles to clear before real growth can be secured, however, it is important to recognise that progress is being made. The property market is driven by confidence and availability of finance and although we have some way to go, particularly regarding the latter, these small positive steps are vital for the market’s recovery.