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News that the National Asset Management Agency (NAMA) have appointed Lazard to on the sale of its entire Northern Ireland property portfolio, following an approach by a potential investor, is set to dominate the headlines over the coming weeks considering the potential impact a large-scale sale would have for the market
It is likely to be the second quarter of 2014 before we witness any of large office transactions being signed
Prime office rents remain stable at current levels but we expect rents of up to £15 per square foot being achieved in the Belfast market by year-end
There have been clear signs of positivity emerging in the retail sector over recent months
Prime retail rents remain stable with little expectation of any increase being experienced in 2014 despite some signs of improvement in the retail sector over recent months
In the industrial sector, demand for small freehold industrial properties continues to strengthen
Over the coming months, attention will undoubtedly be on the entities that have considerable deleveraging to do in Northern Ireland and the pace at which they might bring assets or loans to the market with NAMA’s Project Eagle certain to be the main focus
ENCOURAGING START TO THE YEAR FOR UK COMMERCIAL PROPERTY
UK commercial property recorded total returns of 1.0% in January, which is slightly down on the 1.9% seen in December. Capital values continued to increase, growing by 0.4% over the month, which is a stark contrast to -0.2% recorded in January 2013.
Central London offices were again the strongest segment, with West End and Midtown in particular showing strong capital value growth. Outside of Central London, offices in Outer London/M25 and in the Rest of UK also continued to show capital value growth in January.
All Industrials recorded total returns of 1.2% in January with capital values increasing by 0.7% over the month.
The retail sector continued to show some improvements in January with total returns of 0.7% and capital value growth of 0.2%.
A STRONG DECEMBER FOR UK COMMERCIAL PROPERTY PUSHES TOTAL RETURNS FOR 2013 TO 11.5%
UK commercial property continued to improve in December with capital values increasing by a remarkable 1.4% over the month and 4.6% over the year. Total returns were also strong, reaching 1.9% in December and 11.5% for the year.
Central London offices were the strongest segment and all of the Central London areas (West End, City, and Midtown) showed very strong capital value growth with total returns of 16.7% over the entirety of 2013.
All Industrials recorded total returns of 1.9% in December with capital values increasing by 1.3% over the month.
The retail sector continued to show some improvements in December with total returns of 1.5% and capital value growth of 1.0%.
CBRE expect improving economic conditions to bolster demand for new office accommodation in the Northern Ireland market in 2014 with demand expected to emanate from the expansion of existing occupiers as well as from new entrants.
Although there are a number of new office developments planned, which will ultimately ease the shortage of Grade A office accommodation in Belfast, it will be some time before these schemes come on stream. CBRE therefore expect to see rental growth emerging in the office sector in Northern Ireland over the course of the next 12 months. The property consultants expect prime office rents in Belfast to increase by 20% to reach £161.46 per square metre (£15 per sq. ft.) by year-end. This anticipated rental growth will in turn boost demand for office investment properties in core locations.
In addition to new development, CBRE expect to see increased focus on office refurbishment projects in the Belfast market although this will obviously be dependent on the availability of funding.
While discount retailers were the most active occupiers in the Northern Ireland market over the last number of years, CBRE expect to see more high-profile retail brands coming to the fore during 2014. In addition to existing retailers expanding and relocating, CBRE expect to see several new retailers entering the Northern Ireland market in 2014, including the Apple premium reseller iConnect, which is expected to open two new stores in Northern Ireland this year.
While prime high streets and major shopping centres accounted for the greatest proportion of activity in the retail property market in Northern Ireland last year, CBRE expect to see this momentum filtering down to secondary streets and provincial locations to some degree during 2014.
No rental growth re-emerging in the retail sector in Northern Ireland this year.
An increase in the number of restaurant and coffee shops opening new stores this year.
Vacancy rates in the industrial market in Northern Ireland will continue to decline over the course of the next 12 months, primarily as a result of no new development occurring in this sector for several years.
Industrial take-up in Northern Ireland in 2014 will mainly comprise short-term lettings at relatively low rents as has been the case over the last number of years. No rental growth anticipated in this sector of the market in 2014. We expect continued demand from owner occupiers for freehold property as prices remain below replacement cost.
There was a notable increase in transaction volumes in the investment sector in Northern Ireland in 2013 with 17 investment transactions completing in the 12 month period. CBRE expect this momentum to continue in 2014 considering the volume of deleveraging that still has to occur in the Northern Ireland market. There is reasonably good visibility on investments that are likely to come to the market for sale in 2014, including some shopping centres, which suggests an even higher volume of investment activity occurring in Northern Ireland this year.
Demand for prime investments in the key population centres is expected to continue to emanate from UK institutional buyers, many of whom have purchased in the last 12 months and who may want further exposure to the region. Outside of prime locations, demand is likely to comprise local purchasers in the main.
Now that we are entering a phase of stronger economic growth, some investors are expected to selectively move up the risk curve from core real estate to secondary properties in an effort to boost returns. CBRE expect to see further yield compression of between 25 and 50 basis points being experienced in the Northern Ireland market over the course of the next 12 months on the basis that yields are still attractive relative to regional UK markets and are still some way off their long-term averages. Demand for office investments will increase considering the extent of rental growth that is anticipated for Grade A office stock during 2014.
CBRE expect to see an increase in the volume of development land being traded in the Northern Ireland market over the course of 2014. The vendors will, in the main, comprise a combination of various banks, receivers and borrowers. Outside of Belfast, CBRE expect to see a significant amount of provincial land being traded again in 2014 although buyers are likely to comprise local purchasers in the main. Only lands that are appropriately priced will attract buyers however with little or no premium payable for the benefit of zoning or planning permission.
There were a number of hotel and pub properties traded in Northern Ireland in 2013 and CBRE expect to see a continuation of this trend this year. There are several hotel operators looking for opportunities in the Northern Ireland market at present.