Why Is Government Trying To Kill Our Office Market
10 May 2011I don’t have any patience anymore, perhaps it's my age, but I tend to find my annoyance triggered by stupidity and shortsighted politicians. As we go to the polls this month, my fear is that we again elect politicians based on historic prejudice as opposed to gaining a government that understands business and the financial climate we find ourselves facing. How we encourage inward investment and deliver opportunity to our skilled workforce should be of far more significance than most of the backward-facing debate I seem to hear when I tune in to election broadcasts.
Over recent years, I have written several articles for this publication bemoaning the lack of joined-up thinking within local government agencies. Lately I have found myself astounded by these agencies' lack of understanding regarding the damage they are inflicting on our office sector through their manipulative introduction of lease terms and conditions not found in any other region of the UK. To the best of my knowledge, and I would point out that we have researched this quite widely, we are the only region of the UK with what is referred to as "the modern Government lease". In reality, this is a lease introduced to enable Government tenants to abdicate responsibility for external repair and avoid liability for the replacement/renewal of any plant and machinery within buildings during their occupational term. Quite simply they have created a lease, not found anywhere else in the UK, which is unacceptable to financial institutions.
The local market has lived with these unusual conditions for a number of years because the disposal of assets was achievable to local buyers funded primarily by local banks. The financial constraints of the current economic climate have brought the difficulties associated with these leases into clear perspective. As a taxpayer, I fully appreciate the concept that I expect Government to do a better job of looking after the public purse. What has actually occurred in Northern Ireland is that investors and developers have been forced to accept terms and conditions within occupational leases that create a significantly inferior investment product than that granted to their UK counterparts.
There are currently a number of Government lease acquisitions and re-gearings under consideration and it appears that the terms and conditions being suggested further disadvantage landlords within the Northern Ireland office sector. With Government tenancies comprising some 50% of the Belfast office market, the impact of these measures becomes detrimental to the wider office development/investment market. Over many years, I have been clearly told by Government valuers that the public sector does not manipulate the market; it merely follows the terms and conditions found within the market. With Government valuers currently attempting to renegotiate certain occupational leases and implement even more onerous rent review provisions, some of which are capped against open market growth, it seems quite clear to me that their actions are particularly contrary to their previously stated position.
Having challenged their actions, I eventually received a reply from the Office of the Minister for Finance and Personnel, which stated that "the modern Government lease has been developed over many years entirely through the process of negotiation and agreement between the participants in the local marketplace. If it is the case that this is not reflected in market practice elsewhere then that is entirely a matter for those markets and whatever conditions prevail in them".
There is no indication that there has been any change to central government policy, and as previously stated, leases in the wider UK remain on an institutionally acceptable basis with some rent review provisions being open market or in other situations linked to RPI. This leads me to pose the following question. Why are developers and investors treated so differently by Government in Northern Ireland?
The short to medium term result of this policy will be to seriously impact Northern Ireland's ability to compete in the institutional investment market and will significantly affect the prospect of inward investment to develop within our province. We already have the lowest occupational office rentals for a major UK regional city; the recent introduction of vacant rates is a serious handicap to development, and now we have what appears to be a localised policy killing off investment values within the office sector.
In my view, Northern Ireland must attract inward investment from UK Banks and institutions, however, the shortsighted views of local Government officials could be the catalyst for significant failure in achieving this and could create the very real danger that many landlords will be unable to meet their obligations in terms of repair, renewal and, even more importantly, finance repayments. I find it inconceivable that the agencies involved in the wider promotion of the Northern Ireland economy could be the very individuals who effectively kill off our office development and investment market.
The time has come to make a stand against the bias and discrimination being applied by Government to landlords within Northern Ireland. If you hold investment property within the office sector and have any public sector agency as your tenant, you need to be aware of these issues and refuse to accept the discrimination in the lease terms you are offered by comparison to your UK counterparts. I have never before subscribed to rhetoric with political connotations, but with regard to this particular issue, I urge Ulster to say 'No'!