Commercial property investors 'show caution' as interest rates rise and supply falls

LSH Ireland senior research analyst Claire Shaw and managing director Neil McShane
LSH Ireland senior research analyst Claire Shaw and managing director Neil McShane LSH Ireland senior research analyst Claire Shaw and managing director Neil McShane

INVESTMENT in commercial property in Northern Ireland slumped by more than three quarters in the April-June period following the busiest quarter since the outbreak of Covid.

Lambert Smith Hampton’s latest Investment Transactions Northern Ireland (ITNI) report shows that just £30.1 million worth of deals were made in quarter two of this year.

That was down 77 per cent on the January-March quarter and 54 per cent below the five-year quarterly average.

But although the value of the deals was down significantly, the activity was on trend, with 10 transactions recorded.

And LSH says it anticipates investment volumes will bounce back in quarter three, with high value assets completing including Forestside and Foyleside shopping centres, and Belfast’s Hilton Hotel.

Investment in offices took the biggest hit during the pandemic, but in Q2 office deals accounted for the largest share of volume, with the purchase of Bedford House by a private investor for an undisclosed price being the largest transaction.

It was also the biggest office deal in the north since Merchant Square in March 2021.

Overall, £161.6m of deals took place in the first half of this year - 20 per cent above the five-year average, underpinned by the strong first quarter.

Although the volume of assets may appear healthy, with 40 properties brought to market in the first half of 2023 at a total of £122.4m, Forestside and Foyleside centres account for more than half of the total.

Excluding those two assets halves the average property value from £3.3m to £1.5m in the first half of this year, the lowest value since 2018.

Research for the latest ITNI report was conducted by LSH’s new senior research analyst Claire Shaw.

With 20 years’ experience in the commercial property sector, she was previously a research specialist at LSH before joining commercial property consultancy INPRIO, which was headed up by LSH Ireland’s managing director Neil McShane.

Mr McShane said: “This latest report will provide invaluable market insights for our client base and we’re pleased Claire has joined us again to take this forward.

“Quarter two has seen a slowdown in the market due to the pressure of high inflation, successive interest rate rises and the cost of energy and services provoking caution in both investors and potential vendors.

“But we do anticipate investment volumes to bounce back because it is clear investors still have an appetite for good quality assets.”

Claire Shaw said: “While economic conditions continue to be a challenge, the cooling of inflation may ease the caution that potential investors have been exercising. There is still great value in the market, but to harness ongoing interest and activity we require new stock to emerge.”