ATTRACTING A MORE DIVERSE RANGE OF BUYERS AND SECURING DEVELOPMENT FINANCE REMAIN KEY CHALLENGES FOR INVESTMENT PROPERTY MARKET
13 March 2013Moody’s decision to downgrade the UK’s credit rating from AAA to AA1 last month will no doubt have an impact across all markets, however, the immediate effect on the Northern Irish property market may be increased cross-border trade as sterling continues to weaken against the euro. While this would benefit border towns such as Newry, Enniskillen and Londonderry, what is the outlook in 2013 for Northern Ireland’s investment property market?
The value of investment transactions in Northern Ireland in 2012 was approximately £90 million (excluding Castlecourt - £138 million) compared to £30 million in 2011. Significant deals included Hermes’ acquisition of the 50% balance share in Castlecourt Shopping Centre from Westfield totalling £138 million; LaSalle Investment Managers’ acquisition of two food stores in Lisburn and Londonderry let on long-term leases to Tesco and Sainsbury’s respectively for £48.6 million and CRBE Global Investors’ acquisition of the Tesco food store in Limavady for £6.25 million.
Institutional investors remained active in 2012, however, only a limited number have so far acquired assets in Northern Ireland including Scottish Widows Investment Partnership, LaSalle Investment Managers, CBRE Global Investors, Metric and USS. These institutional investors continue to focus their sights on the retail sector with no significant acquisitions in other property sectors to date. Meanwhile, private cash-rich local investors continue to remain active typically acquiring assets with lot sizes up to £2 million across a range of property sectors.
The outlook for 2013 remains positive with institutional investors remaining focused on specific property sectors and only buying investment assets meeting strict property criteria. We anticipate sales totalling c. £100 million for the year.
Osborne King has been involved recently in the first major property investment transaction of 2013; the sale of Sainsbury’s Ballymena, a 60,777 sq ft food store let on a long-term lease and acquired by LaSalle Investment Management on behalf of the Northern Ireland Local Government Officers Superannuation Committee (NILGOSC). This is LaSalle’s third major acquisition within the last 12 months bringing its total acquisitions for the three deals to over £66 million.
So what is next for 2013? We anticipate institutional investors continuing their selective approach to acquisitions, buying only prime Northern Ireland assets. In addition, we anticipate a number of the banks continuing with large portfolio debt sales across Ireland and the UK.
For example, Lloyds’s recent sales have included Project Pittlane resulting in a purchaser, Apollo/Centre Bridge & Carval, acquiring approximately 550 properties for approximately €220 million representing a discount of approximately 90% on the original loan price of €2.2 billion. Project Harrogate, another Lloyds’ debt portfolio, was acquired by Oaktree, the sale price of £260 million reflecting a blended discount of 58% against loan value.
Put simply, the main challenge facing our property investment market in 2013 is the need to attract a wider range of buyers and secure new forms of finance to help stimulate our investment market and the development pipeline. In particular, our office sector will shortly enter a phase of massive under-supply. The lead-in time for new office development to allow Belfast to compete for new FDI contracts is roughly 12 – 18 months. A dearth of development finance coupled with limited investor demand for offices is a real problem facing the property market and Government in terms of assisting the delivery of new jobs through inward investment. Northern Ireland plc still has many positive attributes, including a highly educated workforce, excellent connectivity and low occupational costs. These factors, while all positive, are not enough to provide new investors with a compelling case to invest. New property development is necessary in order to revitalize a property industry that has simply stalled at present.