07 October 2014

As we move into the last quarter of 2014 the market has exhibited some signs of, dare I say it, positivity? We have seen press releases regarding job creation and investment from Baker & McKenzie to establish a global services centre in Belfast, expansion plans from Ernst & Young for its Belfast office and Deloitte’s announcement regarding its target of 338 new jobs in Belfast over the next five years.

All goods signs, no doubt, but scratch the surface and it is clear that this positivity is still very fragile. The supply side of this equation is still unfortunately absent; desire to deliver new build, “Grade A” office space cannot be met easily. Until we see a return to normal lending conditions deliverability will be stymied, however upward pressure on rents will continue as availability of “Grade A” stock diminishes.

Equally within the residential sector we have seen evidence of pricing, within established locations, grow throughout the last nine months. Even marginal locations, where tangible price growth is not readily identifiable have experienced increased activity.

The big tests for this sector will come with future removal of government subvention via the Help to Buy Scheme, the increased scrutiny placed, albeit sensibly, on borrowers through Mortgage Market Review (MMR) as well as the inevitable rise in interest rates which will test almost all households; but none more so than those still attempting to work through legacy issues around disproportionate loan to value ratios.

Positivity in the retail sector comes from a few new entrants into Belfast in the form of Simply Be/Jacamo, Joules and children’s wear retailer, JoJo Maman Bebe. The retail sector and in particular the High Street, faces more challenging structural changes ahead with current estimates suggesting the typical high street is over supplied to the tune of 20%. This is floor space which may never be re-occupied for retail, therefore even with a potential redistribution of the rates liability and continued increased consumer confidence, vacancy is something we are going to see persist until creative solutions are implemented.

Granted this is not an easy problem to solve and we need a forward-thinking planning service, working alongside the private sector, to lead the delivery of a reinvigorated high street.

Overlay the respective challenges in each of these sectors of the property market with the entrance of private equity funds into the region via loan sales and we infuse a degree of uncertainty into matters that may irrevocably alter the landscape of commercial property in Northern Ireland.

The Basel 3 regulations have accelerated regulatory change within the senior debt market, prompting our traditional lenders to retreat from the market, with loan sales now being viewed as the quickest and most effective method of achieving this retraction.

The hope is that private equity brings with it the prospect of informed and decisive commercial rationale that moves in tandem with this initial positivity in the market, which may in turn support growth.

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