04 January 2013

The effects of the recession continue to percolate through the commercial property market as the continuing dearth of bank finance, further insolvencies, reduced business activity and a squeeze on consumer spending all conspired to push values downward across all sectors.

In the retail sector, the notable headline was vacancy rates reaching 20% (British Consortium, November 2012) placing Northern Ireland at the top of this particular league table. However, there has been some positive activity with a number of high street and retail park tenants seeking units.  In particular, Pets at Home, DFS, H&M, Blue Inc, Trespass, Internationale and Costa Coffee continued on the expansion trail along with discounters, Poundland, Home Bargains, Poundworld and Poundstretcher.  Conversely, demand from fashion retailers and the food store sector declined with the exception of convenience food stores.

2013 will be another challenging year for the retail sector, and assuming that vacancy levels do not drop further, the general expectation is that demand will be on a par with 2012.  We also expect that the out of town sector will continue to perform better than the high street due to lower vacancy levels and improved demand.

Demand within the office market remains relatively consistent with a raft of transactions concluded by the end of 2012. The key issue for 2013 concerns the future pipeline of Grade A buildings with no new schemes likely to come out of the ground in the short-medium term. This will have a direct impact on any benefits accruing from a potential reduction in corporation tax should a positive decision be announced in that regard.  As supply levels dwindle, this is likely to produce some rental growth for landlords with tenants competing for remaining Grade A space.  During 2012, we witnessed a number of significant lettings with companies including Pharmalink Consulting, Cyber Source, Devenish, AXA, A&L Goodbody,  CME Group, Allen & Overy, The British Council and Grant Thornton acquiring city centre office space amounting to over 80,000 sq ft cumulatively.

The investment market featured improved activity levels in 2012 with prime investment properties transacted in both on and off-market deals.  These included the acquisition of Castlecourt Shopping Centre by Hermes (£135 million) and Sainsbury’s, Londonderry (£18 million) by LaSalle Investment Management, Faustina Retail Park, Londonderry (£17.5 million) by Metric/USS and Tesco food stores in Lisburn (£30 million) and Limavady (£6.25 million) by CBRE Global Investors. 

We expect this level of activity to hold or even increase in 2013 and are aware of a number of significant deals currently with solicitors and of properties due to come to the market early in the year.  The buyers are primarily UK-based institutions and property companies seeking prime investment opportunities with a particular focus on the retail sector.

Property prices are at a five-year low, which is good news for cash rich buyers and investors with finance in place.  Our auctions during 2012 resulted in an average success rate of 90% largely due to our policy of pricing properties properly and publishing a maximum reserve figure.  With strong end of year results from the London auction houses, we anticipate that 2013 will prove to be a fertile year for selling and buying property by auction.  Our first auction of the year, scheduled for 22nd March 2013, will allow both vendors and buyers to close sales prior to the financial year end.

Licensed premises sales increased during 2012, unfortunately, this was not down to any significant improvement in the market, but merely symptomatic of difficult trading conditions.  However 2013 has started on an optimistic note as a deal has been agreed for a portfolio of 14 licensed premises.  The majority of sales completed last year were due to Receivership/Administration disposals with the majority of these properties having ceased trading either due to insurmountable debt problems or following a sharp decline in business.

The industrial warehouse sector 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.  Looking ahead to 2013, rentals will remain low with the majority of sales likely to come through Fixed Charge Receivership, banks and insolvency practitioners. 

Although the commercial property market faces many challenges in 2013, demand still exists across all sectors. Activity will focus on prime locations and quality properties with the secondary property market remaining the most exposed.  It is difficult to predict any significant upturn in development pipelines even though it is clear that there will be demand for space.  It appears that 2013 will be a year of further consolidation as landlords concentrate on minimising voids within their portfolios and tenants maintain their strong negotiating position.  Overall, we anticipate that the key performers during 2013 will be the office and investment sectors with the latter having the potential to experience significant activity.

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