Posted on Monday 17 October 2011 by Ulster Business

Opportunities still exist in NI for the savvy investor

As we move into the last quarter of 2011, recent market activity has proved that there is still an appetite for commercial property amongst local and overseas investors according to Andrew Coggins, Investment Director with Osborne King Commercial Property Consultants

Our local marketplace currently possesses many advantages over the Irish market, which is partially constrained by uncertainty regarding government proposals for the reform of rent review clauses in business leases.

Should Morgan Stanley and Merrion cast their sights north of the border, they will be the latest addition to a growing number of institutional investors and fund managers who are trickling back into the local market as evidenced by a number of significant local investment deals transacted over the past fifteen months.

Admittedly, local investment activity has been lower than in previous years. There are signs of the market gathering some momentum with deals including La Salle Investment Management’s acquisition of Braidwater Retail Park, Ballymena (circa £14m); the sale of Longwood Retail Park, Newtownabbey to Scottish Widows Investment Partnership (£48m) and the sale of Marks & Spencer’s store, Donegall Place, Belfast (£8.75m) to another institutional investor. In the news of late has been the on-going sale of CastleCourt Shopping Centre, which is on the market at £171m with interest initially from Land Securities and Catalyst Capital with Blackstone. A sale has not been concluded and the scheme is still on the market at the time of writing.

Clearly, NAMA and non-NAMA lenders are still seeking to de-leverage their property portfolios and we anticipate further sales during Q4 of this year and into 2012. The biggest challenge for those involved in the property market will be to attract new sources of funds to invest, as it is evident that local investors are not yet in a position to purchase significant assets without debt funding, which is still proving extremely difficult to obtain. That is not to say that local investors have withdrawn altogether from the market: they are still actively seeking investment opportunities albeit at much lower lot sizes namely within the £1m-2m price range. In addition, for cash buyers, property undeniably still yields a better return when compared with savings or other asset classes for the savvy investor, particularly properties within a good location offering secure income and long leases.

For instance, we recently negotiated the purchase of a retail parade outside Belfast on behalf of a local investor yielding in excess of 10% while we sold an industrial estate in Mallusk to a local investor, which will also provide good returns.

From a broader perspective, the UK property investment market will continue, in all likelihood, to suffer as a direct consequence of volatility within the global money markets, which may well put the brakes on overall investment levels. There is no doubt that uncertainty regarding the future of the Eurozone has made institutional investors more cautious, resulting in a number of high-profile London deals collapsing in recent months. All of which points to vendors having to re-align their expectations in terms of pricing and timing, particularly in relation to secondary assets as purchasers are clearly taking a longer and more considered approach than hitherto. That said, it is clear that institutional investors, sovereign wealth funds and overseas private investors are still focusing on central London properties whilst appearing to be nervous about investing beyond this market.

As the institutional investors and fund managers continue to consider other major UK cities, they are seeking to apply a discount to their pricing, which naturally is unpalatable to the majority of vendors and results in lower than expected levels of activity. This pricing differential is exacerbated in respect of Northern Irish assets making it more of a challenge to dispose of property locally. Some of our local clients are still active on the UK mainland and we have been successful in negotiating a number of significant deals this year involving local and institutional investors including the acquisition of a Tesco food store in Bristol, a prime retail unit in Glasgow’s Argyle Street plus the sale of a substantial development opportunity in Liverpool.

Moving ahead, although we anticipate new institutional entrants into the local marketplace, this needs to be tempered with the knowledge that this may only apply to prime asset classes. We are far from emerging from global recession and can only hope that the general economy begins to improve, as this is the only thing guaranteed to have a positive and lasting impact upon the property market across Britain and Ireland.

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