Political Risk no Longer in the Equation for Belfast’s Commercial Property Market Investors - Report Summary

Yields are increasing in Belfast, because banks are reducing lending ratios and due to poor investor sentiment towards commercial property across the globe.

Commercial property investors now assess the Belfast market using the same risk profile as other provincial cities in the United Kingdom.
The fact that political risk is no longer a factor in the Belfast market is one of the key findings of a detailed new report completed by Farrelly & Mitchell commercial property investment analyst Barry Malone. The research was inspired by the industry-wide paucity of quantitative and qualitative data on a city that is of key strategic importance to the firm.

Yields Increasing after 14 Years of Decline

The market has been enthusiastic about political progress in Belfast and yields in Belfast fell from 8% in 1996 to around 4.7% at the end of 2007, as investors steadily gained long-term confidence in the commercial property market.
Because there have been very few transactions in the market in 2008, Malone used qualitative data from the some of the leading figures in the Belfast property industry to extrapolate yield and rental trends between 2008 and 2013.
“The overwhelming industry view is that yields have moved out in Belfast in 2008, probably to around 5.5%,” said Barry Malone. “In 2009, particularly in cases where the sale is forced, it could go as high as 6%.”
The outward movement in yields is attributed to the lack of available credit to investors, with banks currently charging up to a 2% margin, in contrast to the 1.5% margins that were being charged as late as the end of 2007. The corresponding reduction in lending ratios has reduced the amount that investors can afford to pay for a building. Poor investor sentiment towards the global commercial property sector is also reducing the amount that investors are prepared to pay for their investments.

Office Rents Set to Continue their Increase, but Retail Rents will Suffer

Although Belfast office rents showed good growth between 1996 until 2001, there was negative rental growth from 2002 until 2003. Rental growth accelerated between 2004 and 2008, with rents increasing from £12 per square foot (psf) to up to £15 psf.

The report forecasts that office rents in Belfast will increase over the next five years. Nine of the senior industry figures interviewed said that rents in Belfast will be higher five years from now that they are currently. Only one interviewee believed that they would be the same and none of the respondents believed that rents will fall. This stands in contrast to most cities in the UK.
The outlook for retail space is less optimistic, with a general expectation that retail rents will stagnate over the next few years, because of an over-supply in the market.

“With office rents expected to increase in the Belfast market over the next five years, it’s reasonable to expect capital appreciation in Belfast offices over the next five years,” said Malone. “In many other UK cities, where rents are falling, yields and capital values are expected to suffer in coming years.”

“The key issue is that Belfast is now judged alongside cities like Edinburgh, Leeds and Bristol, rather than being regarded as an investment with significant political risk,” said Malone. “The growth of international investment in Belfast, the city’s low cost base and its historically underperforming commercial property sector mean that it is well-placed to ride out the worldwide problems in the market,” he concluded. “This should present buying opportunities for investors in 2009.”

To download the report in full please fill in the form below.

*indicates a mandatory field