Posted on Tuesday 12 November 2013 by Ulster Business
Belfast-based Lisney said that only 5% of the best office accommodation in Belfast city centre is currently vacant and new buildings are urgently needed to attract large companies from outside of Northern Ireland.
Lisney predicts demand from the IT, legal and finance sectors will increase as the economy recovers, but with no new supply likely to be available for at least 24 months, it believes investors will be put off.
"We previously voiced our concerns with regard to the potential lack of supply of Grade A office space and the effect that this will have on our wider economy should Northern Ireland become unable to provide suitable accommodation for multi-nationals. Our concerns are now a reality with vacancy levels of 5% and falling," said Lisney's Managing Director Declan Flynn (pictured).
"Based on the recent take up figures, there is less than one year's supply of Grade A offices in Belfast City Centre."
A company planning to create 100 jobs would need roughly 10,000 sq ft of office space, but most of what is available is between 2,500 sq ft to 5,000 sq ft, the firm said in its 2013 report on the market.
Lisney said it was aware of one existing investor which has around 400 staff in Northern Ireland who would like to add another 400 jobs if the space was available.
"We are in the position where Invest NI are bringing investors in and we have no product to show them. That's embarrassing. They are peddling hard to bring new investment into Northern Ireland but they just don't have the product to show them," said Lisney's David McNellis.
"I have that scenario with a client I'm working for, a global corporate who'd like to be in Northern Ireland. But we're in a situation where we don't have stock immediately and a lot of these guys want to be in within six months. So we're now confronted with a situation where they're looking at the likes of Glasgow, Birmingham, Manchester, because they have the stock to meet their requirements. If we aren't able to deliver a building for these guys very shortly I think they will turn their attention elsewhere," he added.
McNellis believes Belfast Harbour's planned CQ1 building could be 100% pre-let before completion such is the shortage of good top quality offices.
He highlighted that close to 2 million square feet of proposed development has been approved by the planning service, but the projects are yet to get off the ground because banks have no appetite for property.
The property agents believe that government intervention is now needed to encourage banks to lend to developers.
"Lack of finance in general and specifically development finance is still an issue and there may be a need for Stormont to intervene in the market to help bring forward the office development pipeline to enhance their stated job creation aims," said Flynn.
For example, he said government could offer guarantees to cover rent on properties affected by gaps in occupancy. He noted that US companies in particular prefer the flexibility of a five year break clause in their lease, whereas banks want the certainty of at least a 10 year lease to secure their loans on buildings.
"What we would call for if we could is some intervention from government. It's really about giving some security to the banks. There's 2 million square feet of development that could come out of the ground, none of it is getting built," said Flynn.
"One of the simplest ways that bankers have said to me is to put guarantees around break clauses so if a tenant pays a million pounds a year and breaks in year five, the government would guarantee that for a couple of years," he added.
"Typically a lot of corporates want flexibility built into their leases in and around five years. But banks need security beyond 10 years to justify the construction costs."
Lisney also identified the low level of commercial property rents for city centre properties as a hindrance to future investment.
David McNellis said the average rent was £12.50 a sq ft in Belfast, similar to when he started 26 years ago, which he attributed to government occupancy in the city centre artificially depressing rents, as well as the recent recession.
He noted in Dublin the average rent is closer to €30 per sq ft and believes the Belfast average needs to rise to £15 per sq ft to give landlords and their banks an adequate return.