IS NORTHERN IRELAND’S COMMERCIAL PROPERTY MARKET HEADING FOR BUMPER FINAL QUARTER?
11 October 2022
There can be little doubt that we are currently living in quite extraordinary times.
We have yet to see the back of a global public health emergency in the shape of the Covid-19 pandemic, an ever-shifting local political landscape, the complexities of our divorce from the EU, spiralling inflation and eye watering energy prices primarily fuelled by the war in Ukraine. A simply astonishing set of circumstances the like of which none of us has witnessed in living memory.
It seems we simply lurch perpetually from one crisis to the next and there are as yet no signs of these headwinds abating. Incredibly in this context, our local property market has fared remarkably well in recent times, predominantly buoyed by a new wave of cash rich private investors keen to dabble in bricks and mortar, and of course we mustn’t forget some hardy perennials.
We estimate that more than two thirds of the investment activity recorded to date in 2022 has been transacted by such individuals and they remain the dominant buyer group, a trend that has prevailed over the past decade in particular.
This said, one could argue that we have or are perhaps about to arrive at something of a crossroads. There is a rash of investment product either currently on the market or heading towards it currently totalling around £250m. To put this in some context, this is around £50m more than the total volume transacted over the first three quarters of 2022.
The product is varied, straddles all sectors of the market and includes some bigger ticket items such as Rushmere Shopping Centre in Craigavon with an asking price of £57m, the Soloist one of Belfast’s most iconic office buildings at £35m and the Mallusk Park Industrial Complex at £16m.
Such assets whilst all attractive will be out of reach for most of the traditional buyer pool outlined (certainly without funding) and new inward investment will therefore likely be required to ‘mop-up’ the supply. This is of course nothing new, with the required introduction of ‘new money’ happening periodically through the market cycle.
In regards to our typical market characteristics, sellers with good quality well located product have probably little to fear as their assets will continue to command strong pricing. This has already recently been demonstrated in last month’s sale of Imperial House, a prime mixed office/retail investment on Donegall Square South overlooking City Hall which was acquired by a local private investor for £7.1m, reflecting a net initial yield of sub 6%.
However, there is a note of caution as at the other end of the spectrum pricing for inferior or even those slightly less attractive assets is likely to creep out and will need to be considered as representing genuine value to attract buyers as we move forward.
I have commented many times before in such articles, about the skill, resilience and appetite of our local entrepreneur and their unwavering commitment to our market, but quite simply they will not be sufficient in isolation to deal with the current supply of product. From a professional perspective it will be fascinating to witness how the coming months unfold and in particular where the wider demand comes from in the period that follows.