Fewer around to take tenancies says property report

The north's property market remains subdued, especially in the commercial sector, according to the latest quarterly RICS/Ulster Bank barometer
Gary McDonald Business Editor

FEWER tenants are coming forward to move into commercial property in the north, surveyors say.

Demand from occupiers dropped during the July-September quarter, driven by an increasingly challenging retail landscape, according to those who do the deals.

They say the local political paralysis, combined with Brexit uncertainty, is having a negative impact and subduing the market.

And they fear that this could ultimately filter through to foreign investment and relocation of EU and international firms.

The findings are contained in the latest quarterly commercial market survey from the Royal Institution of Chartered Surveyors (Rics) and Ulster Bank.

Although demand for industrial space continues to increase, the intensity of requirement is easing further after quarter two first saw Brexit-induced manufacturing stockpiling begin to fall back.

In terms of the retail sector, surveyors reported that occupier demand for retail space continued to drop at a significant rate, as prospects for the high street look progressively challenging. Indeed, the net balance of -61 per cent for retail occupier demand is the lowest since 2008.

Demand for office space continues on an upward trajectory, but at a slower rate than at the beginning of the year. With the availability of office space increasing according to respondents, the long-standing issue in the local market of not enough supply to meet the demand appears to be easing.

The near-term expectation is that overall rents in the industrial and retail sectors will decline, but office rents will be flat.

Surveyors reported a slowdown in both domestic and foreign investment enquiries overall. But interest peaked among potential domestic investors with regards to industrial space. Retail continues to remain in a downturn although at a slower rate than in previous quarters.

As a result, the forecast for capital values in the three months ahead is muted, with only the office sector expected to experience any incline.

RICS regional chair Brian Henning said: “The findings reflect a subdued commercial property market in Northern Ireland, primarily due to an increasingly challenging environment for the retail sector and hesitation due to political uncertainty and anticipation of a potential no-deal Brexit.

“The fact that capital value expectations are still positive suggests a relatively soft landing for the commercial real estate sector is anticipated overall.”

Gary Barr at Ulster Bank added: “Some potential occupiers and investors appeared to be taking a wait-and-see approach during Q3 when there was considerable uncertainty in the wider economy.

“Deals are continuing to be done though by a range of buyers for good assets. Retail aside, when the political picture becomes clearer in the new year, occupier and investor demand in the office and industrial sectors may well start to recover.”

The main findings of the survey were (all figures represent the net balance of respondents):

• Occupier demand across the sectors in Northern Ireland has dipped (net balance of -11 per cent). Demand for industrial space is increasing at a slower rate (+11 per cent) but demand for office space is continuing on an upward trajectory (+17 per cent). Retail on the other hand has dropped further into negative territory (-61 per cent), therefore pulling the all-sector figure down.

• The overall availability of commercial property has risen further into positive territory at a net balance of +39 per cent. Availability has increased across the board for office, industrial and retail at +41 per cent, +12 per cent and +65 per cent respectively.

• The balance of respondents have reported a decline in development starts during the last quarter (-29 per cent), with the office sector having taken a dip (+14 per cent to a flat 0 per cent).Both industrial and retail development starts were also perceived to have scaled back further (-24 per cent and -65 per cent).

• Investment enquiries continue to decrease but at a slower rate than previously, at a net balance of -8 per cent compared to -14 per cent in the second quarter. They have dropped into negative territory for the office sector after a very strong Q4 2018 and Q1 2019 (now at a net balance of -6 per cent). Industrial enquiries have risen from flat to a net balance of +12 per cent and retail enquiries are declining at a slower rate than previous (-47 per cent to -29 per cent).

• Near term rent expectations took an overall downturn, falling from -1 per cent to -33 per cent. For the office sector, they dropped from a net balance of +19 per cent to a flat 0 and industrial rents positive forecasts have gone from +10 per cent to -24 per cent. Retail rent expectations plummeted further to a net balance of -76 per cent respondents expecting them to rise.

• Near term capital value expectations remain positive for the office sector but has eased back to a net balance of +6 per cent. For the industrial sector they have fallen into negative territory (+21 per cent to -6 per cent) and capital value expectations for retail remain in decline (-50 per cent).

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