RICS today urges the Northern Ireland Executive to re-examine commercial property use classes to aid flexibility of use going forward, as the Q1 2020 RICS and Ulster Bank Commercial Survey results point to a sharp deterioration in market sentiment, particularly in retail.

Structural changes in commercial property exacerbated by Covid justifies re-examination of use classes to aid flexibility post pandemic to suit new normal – change must be supported by the application of proper standards
Various uses of commercial buildings should be more flexible to prevent them being ‘stuck’ as definitive uses – e.g. switching between uses on high streets should be made simpler with less red tape
Critical that government engages with the industry to help to facilitate the transformation of the commercial property estate to reflect new needs of the economy

Following what appeared to be a promising start to the year for the commercial market, social distancing measures and forced business closures have now severely restricted activity and will continue to weigh heavily on the outlook over the coming months.

Looking at tenant demand, it is worth noting that social distancing measures were ramped up significantly in the middle of the survey collection window. Separating pre and post lockdown responses there is a marked deterioration in feedback post lockdown.

Overall, occupier demand in the past quarter in Northern Ireland has seen a decline at the headline level with a net balance of -45%, and the indicators returning net balances of -55% for retail, -30% for offices and -51% for industrial.

Unsurprisingly alongside the fall in demand, the availability of commercial property in Northern Ireland rose, with the retail sector seeing the sharpest rise.

Against this backdrop, the near term expectations for rent saw 15% more respondents in Northern Ireland predicting a fall rather than a rise in rents. This, however, is markedly different cross sector, with retail seeing the largest fall. The sector figures see a net balance of 36% predicting a fall in retail rents with more modest falls for industrial and office expected.

The picture looks unlikely to pick up over the next 12 months, with predictions for rent negative in the retail and office sectors. A net balance of 35% expects retail rents to be lower in a year’s time.

On the investment side of the market, overall enquires continued to slip. A net balance of 44% of Northern Ireland respondents reported a fall in investment enquiries in Q1. In terms of capital values, office and industrial values are expected to be broadly flat over the next year, whilst retail capital values are expected to fall.

Brian Henning, chair of RICS in Northern Ireland, said: “The seismic nature of what is currently taking place in the commercial property sector should not be underestimated. Structural changes already underway particularly around ecommerce will be exacerbated, hitting the high street hard. But alongside this, the inevitable rise in agile working as businesses seek to build resilience against future pandemics will undoubtedly lead to a reassessment of demand for office space.

“Against this backdrop, it is critical that the government engages with the industry to build a collaborative approach to addressing the challenges and help to facilitate the transformation of the commercial property estate to something that better reflects the needs of a twenty-first century economy and also the continuing shortfall of good quality housing across all tenures.”

Brian Henning adds: “In the light of current events, there is even more of a need to rethink commercial property use-class regulation, which was produced in response to more static conditions, and make the case for greater flexibility.

“However, it is critical to ensure that this change is supported by the application of proper design and construction standards to ensure the end product, be it retail, office, residential or any other segment of the market is truly fit for purpose.”

Gary Barr, Relationship Director, Commercial Real Estate, Ulster Bank said: “Ulster Bank is very focused on providing support to our customers at this difficult time for many of them. We have provided additional support to over 1,600 business customers and have approved over 95% of requests. We have also provided mortgage holidays for over 2,500 personal banking customers amongst a wide range of measures to support our customers.”

The main findings of the survey were

Occupier demand across the sectors in Northern Ireland has dipped (net balance of -45%) for the fourth quarter in succession.
The overall availability of commercial property remains in positive territory according to a net balance of +25% of respondents.
Investment enquiries continue to decrease with the net balance falling to -44%, the lowest net balance since 2009.
Near term expectations for rent were negative at a net balance of -15%.