Expectations for the commercial property sector in Northern Ireland during the year ahead have improved following last month’s election result and political progress locally, according to the Q4 2019 RICS Commercial Market Survey.

Surveyors expect rents and capital values in Northern Ireland to rise overall in the 12-months ahead, however, there is a big divergence between the office and industrial sectors on the one hand and retail on the other.

With regard to rents, a net balance of +32% of Northern Ireland respondents expects office rents to increase in the next 12 months and a net balance of +44% expects industrial rents to rise in the same timeframe. In contrast, the net balance for retail is -68%, the lowest reading in more than five years.

It is a similar story with regard to capital values. A net balance of 75% of Northern Ireland respondents says that capital values in the office sector will rise in the year ahead and a net balance of 36% says that industrial capital values will rise in the same timeframe. Again, in contrast, the net balance for 12-month retail capital value expectations is -41%.

Retail aside though, the latest survey points to a stronger outlook for the commercial property sector in Northern Ireland both in the near (next three months) and longer-term (next 12 months), after a challenging end to 2019.

After a fall in demand by occupiers and investors in Northern Ireland during Q4, it seems that greater political clarity might spur on some pent-up activity which had been placed on hold due to Brexit uncertainty. The survey was carried out after the December General Election result and as it was looking increasingly likely that a political deal would be done in Northern Ireland.

Brian Henning, chair of RICS in Northern Ireland, said: “Overall, the findings reflect a subdued commercial property market in Northern Ireland during Q4 2019, with uncertainty impacting on activity by occupiers and investors. Activity was more muted in Q4 across the office and industrial, and retail was reported to be continuing to see demand decline. With the perception of more political certainty though, it appears that surveyors expect some pent-up demand in the market to be realised this year. However, it should be remembered that there is still much to be negotiated in relation to Brexit and uncertainty on that front is not done.”

Gary Barr, Relationship Director, Commercial Real Estate, Ulster Bank said: “Some potential occupiers and investors were certainly taking a bit of a wait and see approach towards the end of last year when there was considerable uncertainty in the wider economy. But deals continued to be done by a range of buyers for good assets. Retail aside perhaps, it would not be surprising to see activity that had been put on hold starting to come through now that there is some more political certainty in Northern Ireland.”

The main findings of the survey

Occupier demand across the sectors in Northern Ireland has dipped (net balance of -17%) for the third quarter in succession. Demand for industrial space is increasing at a slower rate than it was (+8%) and demand for office space is flat (0%). Retail remains firmly in negative territory (-58%), therefore pulling the all-sector figure down.
The overall availability of commercial property remains in positive territory but at a slow rate of +6%. Availability of office (a net balance of -8%) and industrial (-8%) space has fallen marginally whilst retail availability continues to rise, albeit at a slow rate, with a net balance of +33% compared to +65% in the previous quarter.
The balance of respondents reported a decline in development starts during the last quarter (a net balance of -28%). Indeed, the balances for all three sectors (office, industrial and retail) were in negative territory in Q4.
Investment enquiries continue to decrease with the net balance falling to -42%, the lowest net balance since 2009. All three sectors had negative net balance regarding investment enquiries in Q4.
Near term expectations for rent were broadly flat at -3%. Expectations for rents in the office and industrial sectors were relatively positive though, with net balances of +17% each. However, the overall figure was dragged down by downbeat expectations for retail rents with a net balance of -42%.
It is a similar trend with regard to near-term capital value expectations, with the balance of surveyors expecting capital values in the office and industrial sectors to edge up and capital values in the retail sector to continue to fall.