Belfast Real Estate Remains Resilient Despite Brexit Uncertainty And Lack Of Government
Despite continued uncertainties around Brexit — including the possibility of a hard border — Belfast's commercial property market is performing well, with strong office take-up, good interest from investors and a particularly buoyant hotels sector.
While the many unknowns around Brexit are not seen as particularly helpful for the market, of more immediate concern is the reality of having no government for a world record-breaking 650-plus days and counting.
“For the first 12 months of having no government we probably had the impression that it wasn’t really impacting us, but it’s been quite obvious this year that it is,” CBRE Senior Director, Capital Markets Robert Ditty said. “Lack of local government isn’t helping us with key infrastructure decisions. It’s probably having a bigger impact over the short term than Brexit is.”
Measuring the impact of Brexit — positive or negative — is not possible at the moment, Ditty said. “But we can quantify our lack of local government and we can see that our market has not bounced on as much as Dublin’s and we also maybe haven’t had the same growth as some other U.K. cities have.”
Slow decisions over infrastructure will clearly have an impact over the medium to long term. But in the short term the uncertainty about where Northern Ireland will find itself once the U.K. exist the EU has not brought the market grinding to a halt.
Strong office take-up
Belfast’s office market performed particularly well in the first half of 2018, with 539K SF of take-up, according to CBRE figures. The agency said that following record levels of take-up in the first two quarters of the year, the summer was slower with 105K SF transacted in Q3.
However, a large number of deals are agreed and in legals. If they complete during Q4, 2018 could be one of the most active years ever in the Belfast office market, CBRE said. Take-up in 2017 was 430K SF, which was broadly similar to 2016.
Activity has been boosted by a couple of very large deals, Savills Divisional Director Simon McEvoy said. For example, IT company Allstate took 140K SF at Mays Meadow, while the Department of Finance signed up to 150K SF at Nine Lanyon Place.
“While these transactions skew the figures slightly, the rest was spread across 45 or 46 transactions,” McEvoy said. “The annual average is usually 45 to 50. The underlying message is that the number of transactions is still ahead of average.”
Lack of office supply is becoming an issue
Belfast has seen a distinct lack of new office development over the last few years. “Our limiting factors at the moment are the uncertainty around Brexit and the inability to raise finance to start speculative development,” McEvoy said.
“We’re generally positive about the future. But, if foreign direct investment or southern firms start looking towards opening an office in the U.K. and Belfast can’t actually supply any space to them, they’re going to consider other locations. That’s the concern more so than anything else. We need to start developing now for the current and the next wave of interest.”
In Q1 2019, County Down property group Wirefox will start work on The Paper Exchange, a 155K SF scheme that will be one of the first speculative developments in the city centre post recession.
Contingency planning goes both ways
The Dublin office market may have benefitted from an influx of U.K. occupiers preparing for Brexit, but Irish companies are also considering their options. According to McEvoy, Belfast’s proximity to Dublin makes it the natural choice for companies thinking of opening a satellite office to service the U.K. market.
“We’re starting to see people coming up from Dublin and walking the streets of Belfast as contingency planning,” he said.
Coming down the line: The Sixth
In August, a planning application was submitted for the development of the former Belfast Telegraph building, which has been renamed ‘The Sixth’. The plan includes the restoration and refurbishment of the listed Seaver building and the redevelopment of the rest of the site to create 230K SF of office accommodation across seven floors, as well as retail and food and beverage. One of the features of the building will be a roof-top running track.
The €75M scheme will be delivered by BelTel, a joint venture between Belfast City Council and developer McAleer and Rushe.
Filling the gap with refurbished stock
According to McEvoy, the Belfast office market is quite similar to Dublin’s five or six years ago in that refurbishments have been the source of most new office supply.
“In 2012-13, every '70s building in Dublin was undergoing a refurb,” he said. “It’s like that now in Belfast. We’ve some very old factories with linen lofts that are being converted and they’re fantastic. But that can only satisfy demand for a limited time before you run out of buildings to refurb so we need new spec development, new Grade A office essentially.”
New hotels on (practically) every corner
There may not be much office development underway, but hotels are more than making up for the shortfall. According to McEvoy, of 29 cranes currently visible on the Belfast skyline, 21 relate to hotel schemes.
Research published by Lambert Smith Hampton in September stated that 1,170 new rooms had already been delivered in 2018 while a number of new hotel brands had opened their first Belfast location.
Developments completed so far this year include the 4-star Grand Central Hotel (304 rooms) and AC Hotel Marriott (188), as well as the Maldron Hotel (237) and the Hampton by Hilton (179), both 3-star properties.
LSH said an additional 183 rooms are under construction across four hotels and are due for delivery before Easter 2019, including the George Best Hotel (63 rooms) and Bank Square Boutique Hotel (17).
“Belfast’s tourism industry is booming and it is brilliant to see the hotel sector reacting to demand this year,” LSH Director of Hotels Darren Fitzsimons said. “Over the last decade, the number of overnight trips to Belfast has doubled to almost 1.5 million and associated expenditure has increased by 120%.”
In September 2017, the 119-room Titanic Hotel opened after a £28M investment that included the restoration of the former Harland and Wolff drawing offices.
CBRE's Ditty sees scope for plenty more hotels on the horizon. “If you compare Belfast with Bristol, Newcastle and other major U.K. cities, we still have fewer hotel rooms. Once the occupancy rate for the new rooms is steady there’s probably scope for another phase of growth coming in behind that again.”
Investor interest is good
CBRE figures indicated that investment spend across Northern Ireland was £122.2M in the nine months to September 2018.
The firm said it expects the final quarter of the year to be a particularly busy period that should bring investment volumes for the full year up to 2017 levels. This would be quite a feat: according to Savills, last year's transactions totaled £325M, up 25% over 2016.
The biggest deal so far this year was the sale in September of the Metro Building on Donegall Square to a private property trust for “well over” the asking price of £21M. The 70K SF office building is currently let to Capita, Johnston Publishing and Yell.
Next door to Belfast’s tallest building – the Obel Tower – is Obel 68, a six-storey, 52K SF office block let to law firm Allen & Overy. The block was bought by Belfast Harbour for over the £15M asking price. Belfast Harbour already owns the City Quays development in nearby Clarendon Dock.
Lisney Investment Director Nicky Finnieston said his firm had expected good local interest but was pleasantly surprised by the level of London and international interest. “We had interest from private investors, property companies, private equity and institutions, which is a glowing vote of confidence for the Belfast office market.”
Another significant recent deal was the sale in June of 40-46 Donegall Place to French asset management company Corum for more than £16.4M. The 67K SF retail property is currently let to Next and Eason. The acquisition was Corum’s first in Northern Ireland and just its second in the U.K.
Finnieston said decision makers within the industry are becoming more mindful of the pending Brexit deadline and the lingering uncertainty, but that investors recognise that the core fundamentals of the local market are robust. “Clarity regarding ‘the deal’ and of course, Stormont, is required to maintain the momentum of recent months,” he said.