Investing in Belfast’s Future: A Real Estate Research Report

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Investment market

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The Belfast Commercial Real Estate (CRE) investment market has traditionally been much smaller than in other major UK cities, with over half of its investments since 2015 coming from domestic UK investors. This being said, what Belfast’s CRE market perhaps lacks in stature, it makes up for in value. Attractive yields, positive rental growth, large public sector employment and a growing tech industry are all reasons investors continue to choose Belfast.

As the second-largest city on the island of Ireland, it has huge investment potential. Northern Ireland and Belfast have a unique competitive advantage as a consequence of Brexit, with arrangements eliminating tariffs for UK businesses trading with the EU. Northern Ireland firms will also avoid the need for new regulatory checks because they will still be following EU single market rules. This should attract new occupiers and business seeking to benefit from its exceptional status, which in turn should be a positive boost for the Belfast CRE industry.

Furthermore, given that no other UK country shares a border with the EU, Belfast offers a gateway to Europe less than a 90-minute drive to Dublin, a city that witnessed 3.2billion Euro of CRE investment in 2020. Many commentators suggest that capital previously deployed into Dublin may be invested into Belfast in future years as Belfast establishes itself as a portal of trade for the UK and EU.

Notable Belfast investments are shown in this table.

Address	Date sold	Purchaser	Price	NIY	Sector
Merchant Square	March 2021	International	£87,000,000	5.20 per cent	Office
Holywood Exchange	November 2020	GB property company	£17,920,000	9.74 per cent	Retail
Amazon, Channel Commercial Park	October 2020	Institutional	£27,120,000	5.50 per cent	Industrial
CastleCourt Shopping Centre	July 2017	International	£123,000,000	6.41 per cent	Retail
John Bell House, Belfast	not applicable	NI investor	£30,000,000	to be confirmed	Other
Metro Building, 6-9 Donegall Square South	September 2018	NI investor	£21,800,000	5.52 per cent	Office
NCP Car Park, Montgomery Street	June 2018	Institutional	£18,040,000	4.27 per cent	Other
40/46 Donegall Place, Belfast	June 2018	International	£16,400,000	7.00 per cent	Retail
Cleaver House, Donegall Place	September 2017	Republic of Ireland investor	£15,250,000	7.63 per cent	Mixed use
Obel 68	August 2018	Institutional	£15,200,000	6.64 per cent	Office

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Investment volumes

Investment volumes in 2020 across the market are down 35 per cent from the 2019 figure and 49 per cent down on the five-year average, as investors are forced to take stock and consider their options.

There was some encouraging news in 2020. Industrial properties had an exceptional year with £29.57 million of industrial investment sales, making it the busiest for industrial investment sales in well over six years.

Since 2015, £717 million worth of CRE stock has transacted between investors in Belfast. This equates to 101 deals. The largest deal in this period was Wirefox’s purchase of CastleCourt in July 2017, a deal that achieved a yield of some 6.41 per cent. Other large purchases included the £30 million purchase of John Bell House student accommodation, UBS’s purchase of Amazon’s Last Mile Distribution Hub at Titanic Quarter and the sale of the Metro Office Building in September 2018 for £21.8 million.

During March 2021, Merchant Square sold to Albilad Capital for £87 million, reflecting a net initial yield of 5.20 per cent which is the largest office investment and strongest yield achieved in the Belfast market. This bodes well for the future of the office sector in the region.

Type of investor

Unlike the rest of the UK, the market over the past six years continues to be largely dominated by domestic investors, with 34 per cent of the market share being attributed to NI investors. However, with 13 per cent and 19 per cent respectively, GB property companies and international investors continue to appreciate the value of the Northern Ireland market and are still very much active across all asset classes.

The past couple of years has started to see a shift with more foreign money taking a look - and indeed investing - in the Belfast CRE market. With the expected growth in the industrial and residential sectors, the attention of foreign investment is likely to increase.

Investment returns and yields

• At an all property level, Belfast’s total return was 1.4 per cent. Belfast’s office return was underpinned by an income return of 7.5 per cent. Belfast’s comparatively high overall income return of 7.1 per cent continues to make the city a competitive property investment destination in a pan-European context.
• Further encouragement in the investment market can be taken from Belfast property yields in 2020 were able to hold stable, with only retail yields softening. Averaged across the three main asset classes, Belfast’s property yields at the end of 2020 equated to 6.3 per cent, putting it on a par with Bristol (6.28 per cent).

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Prime yields at the end of 2020

Sector	Belfast	UK regional cities	Dublin
Retail, High street shops	7.50 per cent	5.25 per cent	7.50 per cent
Retail, shopping centres	9.50 per cent	7.00 per cent	5.50 per cent
Retail warehouses (bulky)	8.00 per cent	6.50 per cent	5.75 per cent
Office	5.75 per cent	4.75 per cent	4.00 per cent
Industrial (Estates)	5.75 per cent	4.50 per cent	4.75 per cent

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Office market

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A resilient market

Rapid7

Rapid7 is committed to investing in the company’s global expansion, particularly in areas with impressive technical talent such as Belfast. Causeway Asset Management understood our vision and expansion goals and truly partnered with us to develop the right solution for our future success in Belfast.
 

Jamie Kinch
Vice President of Real Estate & Workplace Experience

The growth of our Belfast office has been a remarkable success story which would not have been possible without the exceptional pool of talent here from both legal and business backgrounds, which has allowed us to create highly skilled and specialised opportunities in Northern Ireland.

 

James Richards
Executive Director

 

This move underlines the PwC Executive Board’s confidence in Northern Ireland as a location and the success of the firm here. We will continue to grow in local, national and international markets from Belfast, drawing on the technology skills emerging from our schools, universities and colleges.

Paul Terrington
Northern Ireland Chair and Head of UK Regions

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Office market in Belfast

• Demand supported by a range of occupiers
• Belfast take-up 2019 versus five-year average

Professional services

Creative industries

Business services

Notable office deals in Belfast

Merchant Square
Size: 200,000 sq ft
Practical completion: 2020
Occupier: PwC

Erskine House

Size: 100,000 sq ft
Practical completion: 2019
Occupier: HMRC

The Ewart

Size: 209,000 sq ft
Practical completion: 2021
Occupier: Part let to Deloitte (80,000 sq ft)

Allstate HQ, East Bridge Street

Size: 138,225 sg ft
Practical completion: 2018
Occupier: Allstate Investment

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Overview of office market

The Belfast office market has been the city’s strongest-performing sector in both take-up and investment since 2015. Five-year annual office take-up average stands at 482,322 sq ft, remarkable given that the 2011 to 2015 five-year average equated to 319,000 sq ft. Rising by almost 200,000 sq ft per year is no mean feat and is testament to the occupational market Belfast has, with modern stock and low overheads attractive to both occupiers and investors. Office take-up has over the past few years gathered momentum, with notable deals including PwC taking over 200,000 sq ft at Merchant Square, the Department of Finance taking 149,000 sq ft at 9 Lanyon Place and HMRC taking over 100,000 sq ft at Erskine House.

The public sector was historically the largest occupier in the office market. However this situation has significantly reduced over the years with a huge rise in the tech, creative and professional service industries resulting in many global organisations calling Belfast their home.

Developments

In recent years, over 670,000 sq ft of office stock has been developed, and Belfast city centre has some of the most modern, Grade A office buildings in the UK. Although speculative development has been limited over the last five years, most schemes have been fully leased by practical completion. Recent completed developments include City Quays 2, River House, The Laser, Merchant Square and The Weaving Works.

Notable office developments in Belfast

The Weaving Works

Completed: 2017
Developer: Karl Group
Size: 30,528 sq ft

River House

Completed: 2018
Developer: Castleforge Partners
Size: 78,000 sq ft

City Quays 2

Completed: 2017
Developer: Belfast Harbour
Size: 80,000 sq ft

Merchant Square

City Quays 2
Completed: 2017
Developer: Belfast Harbour
Size: 80,000 sq ft

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Office market prime rents

The current rise in prime rents is forecast to continue. Grade A rents for Belfast equated to £23.00 per sq ft, up some 43 per cent since 2015. This rapid rise in rental values is extremely attractive to investors. However, at just £23 psf for city centre Grade A space, Belfast represents one of the few major cities in the UK with modern office stock at relatively low prices.

Investment

Since 2015, deals worth more than £343.5million have been concluded, most notably Citibank purchasing The Gateway for £34million and The Metro Building for £21.8million, Obel 68 selling for £15.2million in August 2018 and James House selling for £16million in March 2019. Merchant Square sold in March 2021 for £87million, the largest office investment ever sold in Northern Ireland and reflecting an initial yield of 5.20 per cent.

Looking forward

Encouragingly, live requirements for space in Belfast continue as occupiers seek the benefit of the Belfast office market fundamentals. These requirements, if fulfilled, would equate to some 1.4m sq ft. It should be noted that as of March 2021, there is only 1.19m sq ft of available office space but a further 723.629 sq ft of office development due for completion by the end of the year will help to satisfy demand.

Belfast has another 2.7m sq ft of identified office developments which have obtained planning permission and could start in the medium term. The development pipeline offers a great opportunity for investors to secure best-in-class schemes over the next five years and build critical mass within the market. With yields reflecting around 5.75 per cent, office investments in Northern Ireland look well-priced compared to other UK and European cities.

Notable Belfast office investments

Address	Tenants	Square feet	Date sold	Purchaser	Price
Merchant Square	PwC	240,204	March 2021	International	£87,000,000
Victoria House, 15-27 Gloucester Street	various	58,254	November 2019	Private investor	£12,500,000
The Gateway Offices	CitiBank NA	133,205	April 2019	International	£34,350,000
James House, Gasworks	Department of Finance	111,488	March 2019	Government	£16,000,000
Metro Building, 6-9 Donegall Square	Capita, Yell	69,611	September 2018	Private investor	£21,800,000
Obel 68	Allen & Overy	52,169	August 2018	Harbour Commissioners	£15,200,000
Ulster Bank, Shaftesbury Square	The Royal Bank of Scotland Plc	35,631	April 2016	Private investor	£9,890,000
Capital House, Wellington Place, Upper Queen Street	Northern Ireland Water, Diageo, Capita and Steria	72,083	January 2016	Republic of Ireland investor	£11,050,000
The Soloist Building, Lanyon Place	Pinsent Masons	88,000	December 2015	UK investor	£14,500,000
Clare House, 303 Airport Road West	Department of Finance	66,210	March 2015	Government	£8,000,000
Causeway Exchange, 1-7 Bedford Street, Belfast	Department of Finance	71,554	February 2015	Government	£12,150,000

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Demand for new space increasing development activity

Notable developments

City Quays 3
Completed: Quarter 4 2021
Developer: Belfast Harbour
Size: 260,000 sq ft

The Ewart
Completed: Quarter 4 2021
Developer: MRP
Size: 209,000 sq ft

Olympic House
Quarter 4 2021
Developer: Titanic Quarter and
Belfast Harbour
Size: 146,746 sq ft

The Paper Exchange
Completed: Quarter 1 2022
Developer: Wirefox
Size: 156,000 sq ft

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Thought piece: The growth of tech

It is estimated that around 60,000 people are employed by technology companies in Belfast, making it one of the leading cities in Europe for new software development. The wider Northern Ireland tech ecosystem can lay claim to over 1,200 companies, ranging from large multi-nationals to small start-ups. It is home to global businesses in financial software, data analytics and encryption, access control systems, and intelligent surveillance technologies with occupiers such as Concentrix, Rapid7, Neueda and Proofpoint all taking new office space in recent years.

Supporting all these businesses is a strong network of regional and UK government investment programmes and world-class academic institutions. Queen’s University Belfast is globally-renowned for its Centre for Secure Information Technologies (CSIT), an innovation and knowledge centre for cybersecurity and the largest of its kind in the UK, with BAE Systems, Infosys, IBM and Thales among its partners. Belfast is the world’s number one destination for US-based cybertech investment and is fast becoming a global cybersecurity hub. This sector employs over 1,200 people. With a pipeline of talent, pioneering research and innovation and secure and resilient infrastructure, it will be one of the world’s leading cyber economies by 2026.

These tech companies have excellent reasons to be based in Belfast. Not only does it represent competitive value for money, but  it is one of the most technologically advanced cities in the UK. Belfast has invested heavily in infrastructure that supports tech companies.

Add to this an exceptionally talented, young and highly-educated workforce, and it becomes apparent why the business start-up survival rate in the city is 55.3 per cent one of the highest in Europe. Belfast has in place all the elements needed to grow and nurture a thriving tech community.

Both Queen’s University Belfast and Ulster University are investing heavily in electronics, computer sciences and cybersecurity. The region is expanding its economic development efforts, with the Northern Ireland Executive publishing its New Decade, New Approach agreement, which included a call to promote the region as a global cybersecurity hub.

The £1billion Belfast Region City Deal will also play a substantial part in growing the tech sector even further.

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Retail market

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Reasons to be optimistic

The retail sector in Belfast like the rest of the UK and Ireland continues to face considerable headwinds, however, despite this there are more than enough reasons to be optimistic about the market in Belfast, with very limited availability in retail parks and the supermarket sector performing particularly well.

Economists are adamant it will be a consumer-driven economic bounce back once the pandemic is over, with thousands of households sitting on surplus capital accumulated during lockdown.

We believe that the current market offers a once in a generation opportunity to reimagine and reposition our high streets and city centres for the requirements of the future.

CBRE NI Retail

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Retail market overview

Although Belfast has faced the same retail challenges as the rest of the UK, the market has shown reasons to be optimistic.

The COVID-19 crisis has perhaps acted as a catalyst towards a more sustainable and sensible retail sector. Landlords have willingly co-operated with many tenants, restructuring leases and in some instances allowing rental ‘holidays’ in an attempt to ensure that when the restrictions are lifted, as many retailers as possible are in a position to bounce back strongly.

The freezing of business rates is another encouraging move from local government and again should certainly level the playing field in the short term for when lockdown is finished.

It is also important to remember that some retail sectors in 2020 performed very well. Retail warehousing continues to be hugely popular and the supermarkets, exempt from the lockdown restrictions, performed strongly, with many new stores now looking for additional space.

• Retail has traditionally been a strong sector in Belfast, largely due to limited institutional investment stock availability coupled with a strong occupier market driven by cross-border trade and limited online retail penetration in comparison to GB. Over the past five years, retail represents the second-biggest asset class in terms of investment volumes, falling just short of the office market at £216.14milion.
• On the high street, many retailers have taken space in Belfast city centre over the past few years with occupiers such as Smiggle, Hotel Chocolat, Oliver Bonas, Tommy Hilfiger, Vans and Bunsen all entering the market. The Pragma Retail Report of 2020 detailed evidence to suggest that Belfast High Street also had a higher rate of independent stores than the rest of the UK (49 per cent); showing the real viability for smaller retailers.
• Retail parks have not been adversely impacted during 2020 given that parking is free and units tend to be larger, making it easier to maintain social distancing.
• There has been noticeable activity in the food sector as well. Lidl remains incredibly active and Tesco continues to dominate the convenience market in Belfast with a 35.2 per cent market share (December 2020), according to research produced by Kantar.

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Retail market investment

Limited retail transaction activity in 2020 made determining pricing more challenging. However, yields have weakened since the start of 2020 and are expected to weaken further into 2021. All Belfast high street shops have moved out, with prime yields now around 7.5 per cent and prime shopping centres around 9.5 per cent. Prime retail warehouses have been the least impacted, standing at 8 per cent.

International capital can be attributed to the two largest deals in this time frame, displaying the appetite they often have for multi-let retail properties. GB capital in the form of UK property companies spent £19.92million while Northern Irish domestic investors attributed to £22.55million.

In terms of volumes, retail has proven a popular investment historically. Since 2015, £216.14million of retail has transacted, the second-biggest spend on asset class after offices.

Looking forward

News that the Bank of England CPI inflation will remain at around 0.5 per cent until late spring is welcome, as low inflation will provide a sizeable boost to household spending power and disposable income, which at the last recorded figure in 2019 for Belfast was averaging approximately. £19,000 per household, significantly higher than comparable cities.

Supermarkets will outperform other asset types over the next five years, driven by increased sales and store expansions. Capital values are forecast to increase by 1 per cent (five-year annualised) and total returns averaging around 6 per cent (five-year annualised) according to CBRE’s MSCI forecast.

Belfast city centre is well positioned for future occupiers and investment in the sector, driven by Ulster University’s new campus which is due to open in summer 2021, and ambitions to significantly increase city centre living over the next  10 years, continuing growth in tourism and the completion of new office schemes in the city.

The city has a high number of independent retailers which strongly complements the multinational operators. However, there exists an opportunity to attract other key national and international retailers who are currently not represented in the region.

Notable investment transactions

CastleCourt Shopping Centre
Completed: July 2017
Price: £123million
Yield: 6.41 per cent
Purchaser: Wirefox & Tianlie

Fountain House, Donegall Place
Completed: October 2018
Price: £14million
Yield: 4 per cent
Purchaser: Primark

Cleaver House, Donegall Square North
​Completed: September 2017
Price: £15.25million
Yield: 7.63 per cent
Purchaser: Republic of Ireland investor

40/46 Donegall Place
​Completed: June 2018
Price: £16.4million
Yield: 7 per cent
Purchaser: Corum Asset Management

Holywood Exchange
​Completed: November 2020
Price: £179.2million
Yield: 9.74 per cent
Purchaser: DS Properties

Donegall Arcade, Castle Place
​Completed: November 2015
Price: £15.8million
Yield: 4.53 per cent
Purchaser: Sports Direct

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Thought piece: ahead of the curve, the transition to online shopping

E-commerce is the fastest growing segment of the retail market in Europe and North America. An average of 61.1 per cent of the population of Western Europe shopped online at least once in 12 months. Combined e-commerce sales in Western Europe (UK, Germany, France, Netherlands, Italy and Spain) were £152.20billion in 2015 and reached £224.425billion in 2019 (47.5 per cent growth). The United Kingdom has the most advanced e-commerce market in Europe.

COVID-19 is expected to see one quarter of the UK’s whole population make a permanent switch to online shopping as the pandemic accelerates the move from ‘bricks to clicks’.

The rise in online penetration levels, driven by the UK’s nationwide lockdown, will continue throughout 2021 as retailers continue to invest in their online platforms and move a larger proportion of their sales online. CBRE forecasts that online penetration will reach 26 per cent in 2021 and 30 per cent in 2025.

This one-off step change disguises further change within retail subsectors. Online penetration levels for all food retail doubled to around 10 per cent as a result of the pandemic, whereas all non-food retail increased from 22.7 per cent before the March lockdown to around 40 per cent during it, settling at around 25 per cent once non-essential retail stores reopened (ONS, November 2020).

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Logistics and industrial market

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The supercharged market

The continued acceleration of the global e-commerce market, the property’s exceptional covenant and the robust performance of the Northern Irish industrial sector provided us with confidence in the strength of this acquisition. This strategically-located, prime logistics property offers highly defensive characteristics and visible, longterm income streams that align with the returns target of our clients.

Titanic Quarter Logistics acquisition
Gijsbert van Riemsdijk
Head of Transactions Europe,
UBS Global Asset Management

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Overview of logistics and industrial market

Belfast’s industrial market has always been compact and primarily owner-occupier driven. Most industrial stock within the city is currently occupied, be it let or sold, with vacancy levels at an all-time low. Research from CBRE suggests there are an estimated 50 active industrial requirements for industrial space in Northern Ireland at the moment, equating to some 1.9m sq ft.

Positive success stories:

• The £6million sale of Harland & Wolff to InfraStratta in 2019 was hugely significant, safeguarding some 120 jobs in the process.
• Spirit AeroSystems Belfast (formally owned by Bombardier) plans to expand its aerospace manufacturing facility by some 340,000 sq ft.
• Amazon moved to a new 100,000 sq ft facility at Titanic Quarter as the firm looks to deepen its local networks of delivery vans for its last-mile service. The US firm is also reportedly seeking its first warehouse in the Republic of Ireland to carry out orders currently shipped from the UK, which could see further commerce pass through Belfast as a result.

Development

The demand for industrial space throughout Northern Ireland is only set to grow in a post-pandemic world. Belfast will need to see further lands zoned for logistics development to meet the demand for warehouse space. However, it is also more than likely that industrial/logistics development will happen in the city suburbs and further afield in the wider Belfast Region.

It is likely that local authorities will become more receptive to logistics developments due to the job creation opportunities. It will therefore be critical for councils to deal with applications quickly in order to facilitate further growth.

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Prime rents in logistics and industrial market 

Historically, industrial rents have remained low at £4.50 psf. However, given this lack of quality supply currently available to occupiers, the sector should experience growth in 2021, setting it apart from many other commercial property sectors. New build rents are anticipated at £6.00 to £7.00 psf.

Investment

Since 2015, Belfast has transacted £34.47million worth of industrial investments, with deals growing in stature. Local investors purchased Edenderry Industrial Park for £1.4million in 2017, but this was surpassed by the purchase of 96 Duncrue Street for £2.44million the following year. Then Amazon’s Last Mile distribution hub at Channel Commercial Park sold to UBS for £27.12million in 2020 at a reported yield of 5.5 per cent. Out of the seven industrial deals in Belfast since 2015, six have been acquired by Northern Irish investors seeking to to buy up what limited stock comes to the market.

Looking forward

In the short term, it is expected that investor activity will continue to focus on industrial and logistic properties with a growth in investment volumes over the next 18 to 24 months. This may well change the type of investor, as other traditional investor types try to gain a foothold in NI industrials. We expect yields to harden and capital values of good quality industrial stock to rise. The biggest challenge is the continuing lack of suitable investment stock. Therefore we expect the development pipeline to increase significantly to meet investor and occupier demand over the short to medium term.

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Industrial market thought piece: outward industrial growth

The logistics and industrial sector is set for significant growth over the next five to ten years. As with the office sector, there is a supply-demand imbalance. There has not been a speculative industrial-logistics scheme built within the last 12 years in Belfast. We expect that new schemes will be brought forward towards the end of 2021 and early 2022.

The Belfast Region has very compelling reasons for investment:

• Northern Ireland prime industrial yields, at 5.75 per cent, are at a large discount to GB (4.00 per cent) and Republic of Ireland (4.75 per cent)
• Rental levels are one of the lowest in UK and Ireland, offering headroom for growth 1.9 million sq ft of requirements with limited supply
• Dual market access has the potential for allowing further growth in manufacturing
• A booming logistics sector with the possibility of serving all Ireland and with links to the UK

CBRE surveyed over 100 of the largest logistics occupiers in Europe to gain insights on their expansion plans, current challenges, location and building preferences and the impact of Covid-19 on their real estate strategies.

With dual market access, Belfast is very well-positioned to take advantage of this growth and we are already beginning to see significant interest from international investors and occupiers. Over the next few years the key challenge will be availability of good quality space and supply of land for development. Councils will need to look carefully at existing zoning policies to establish if additional tranches of land can be zoned and potentially released for development purposes.

Important factors for location and building selection

Vitally important or important factors

Less important factors

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Hotel and leisure market

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Bouncing back stronger

The NI hotel market has had phenomenal market growth over the last five years with 5.3 million trips to Northern Ireland in 2019. NI hoteliers are very resilient and have experienced challenging times in the past. We expect hoteliers to bounce back again towards the second half of the year.

Paul Collins
CBRE Head of Hotels Ireland

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Hotel market

The current pipeline is limited for hotel development. However, there are three aparthotel schemes with planning permission. These include:

• room2 Belfast aparthotel (175 units)
• Bedford Yard (154 units) and
• Dublin Road aparthotel (85 units).

The existing Belfast aparthotel market is limited and the most recent to open was Dreams Pods (19 units) in Bank Square.

Occupancy rates, RevPAR and ADR

Prior to 2020, Belfast was approaching 72 per cent occupancy rate, up 5 per cent from 2014’s figure. RevPAR was sitting at £57.25 and the average daily rate reached £78.20, well above the regional average.  

Investment

Transactions since 2015 have included:

• the sale of the Hilton Belfast (part of a wider portfolio sale known as Project Dragonglass) in 2018
• the sale of Project Trident (the Tifco Hotel Platform which included the Travelodges in Belfast and Derry) to Apollo Global Management
• Jury’s Inn Belfast (part of portfolio sale) purchased by Pandox in 2017

In 2015, Dalata Hotel Group purchased the former Holiday Inn for £18.5million.  In the same year, Ampleforth Group purchased the five-star Fitzwilliam Hotel.

Hotel market looking forward

It is anticipated that with the lifting of restrictions and hotels reopening, Northern Ireland and Belfast will be a popular staycation destination since international travel will be limited in the short term. Our hunger to travel and take holidays is still evident, with Tourism NI forecasting a return to 80 per cent of 2019 levels by the end of 2022 with a fuller recovery by 2024. Results from a recent Tourism NI survey found that around half of holidaymakers expect to take a short break or holiday in Northern Ireland by the end of 2021. The effectiveness of the vaccine rollout in Northern Ireland will also be key to the hotel market’s recovery. Additional growth in the sector will be driven by the Belfast Region City Deal which will be investing significantly in creating further world-class tourist attractions. An example of this is the newly proposed £100million Belfast Destination Hub in the city centre, a unique international attraction exploring the many stories of the city and its people.

This will be a major, multi-venue cultural centrepiece where local people meet and Belfast connects with its international visitors. It will include a large-scale exhibition space with cafés, restaurants and retail outlets appropriate to the nature and content of the attraction. It will be of landmark architectural quality, with attractive covered outdoor areas.

Northern Ireland Tourism Statistics for 2019

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Multifamily residential market

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Build to rent - huge growth opportunity

The UK’s multifamily residential sector has undergone significant growth, as affordability constraints of home ownership and a variety of lifestyle shifts have resulted in more people renting for longer. High tenant demand, coupled with the historically-attractive risk-return profile of UK residential property, is driving a new wave of institutional investment into the sector. Belfast has continued to experience high levels of development in the purpose-built student accommodation (PBSA) sector. Other regional cities ahead of Belfast in the development cycle have then witnessed post-graduate students relocating from PBSA into co-living and build to rent (BTR) markets.
 

CBRE Research

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Multifamily housing market snapshot

The rise of multifamily housing

The expansion of multifamily housing (MFH) as an asset class across Europe has been underpinned by growth in the wider private rental sector (PRS). There is 31 per cent of European households living in private rental homes, up from 26 per cent over the last decade. This reflects a range of social and demographic trends. For example, population has been increasing, particularly in the younger, typically renter cohorts.

A compelling investment

Added to the favourable demand profile, MFH provides a compelling investment case. Its income profile, with low volatility and low risk, appeals to a wide range of investors. Often inflation linked, the income stream correlates particularly well with pension fund liabilities. It also gives an opportunity for investors to diversify into an asset class, which has a low correlation with other asset classes and the wider economic cycle. Comparing total returns across assets at a European level shows residential has performed consistently well. A growing, resilient and evolving sector MFH is a relatively new asset class in Europe, but CBRE is expecting the level and share of MFH investment to increase in all European markets as momentum gathers. According to CBRE’s recent EMEA Investor Intention Survey, a quarter of respondents noted a preference for MFH investment, making it the second most popular property type after offices. Our forecasts suggest that by 2025 residential investment, of which MFH is around 75 per cent, will total nearly 80 billion Euro, up 20 per cent over five years.

Resilient in the face of the pandemic

The level of MFH investment has increased significantly over the last decade, and particularly since 2015. Moreover, despite the COVID-19 pandemic, MFH investment rose in 2020, totalling 47 billion Euro, 227 per cent higher than in 2019. In contrast, total commercial real estate investment fell by 17 per cent. As a result, MFH accounted for around 17per cent of total commercial real estate investment. When including other residential sectors, such as the student sector, investment totalled 66 billion Euro in 2020, up 7 per cent on 2019.

And it’s evolving

As well as growing in size, the market is evolving in nature. For example, over the past few years we have seen an increase in cross-border activity. In 2020, around 17 per cent of investment originated from North America, up from 7 per cent in 2017. Domestic investment still makes up the lion’s share, but has fallen from 62 per cent to 48 per cent with the rise in cross border activity.

Investment

Despite COVID-19, MFH investment in 2020 totalled a record high of £3.5billion; 30 per cent up on 2019 and 15 per cent higher than the previous peak in 2018. It now accounts for 8 per cent of total UK investment, up from 5 per cent in 2019. Even throughout a challenging year, 2020 saw several new entrants. For example, Countryside agreed a deal with Goldman Sachs, which could deliver up to 1,000 new rental homes over the next three years. And John Lewis announced plans to move into the sector, with proposals to convert excess space in its retail store portfolio. Existing investors are also expanding and diversifying portfolios.

Outlook

Pricing generally remained in line with pre-COVID-19 expectations, and the benchmark yields remain largely stable and unchanged in Quarter 4 in 2020. However, we are seeing indications of prime locations trending stronger. Sentiment remains broadly positive moving forward, and a sizeable pipeline will start to feed through to the market. We forecast MFH investment to total £4.1billion by the end of 2021 and surpass £7billion by 2025.

We also expect to see a drive of institutional grade capital into single family housing. (Source CBRE Research – European Multifamily Housing Report April 2021)

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The build to rent (BTR) opportunity

• Projected population growth over the last five years is equivalent to an additional 2,800 people per year living in the city of Belfast. Over the next 20 years, Belfast City Council is targeting population growth of 3,300 people per year.
• Belfast has a higher proportion of young adults in the population, compared with Northern Ireland as a whole, in particular in the 20 to 34 years age bracket. This suggests that a high proportion of young professionals are being attracted to the area. In contrast, the proportion of children and over 40s is lower.
• According to Experian, the sociodemographic profile of the city is diverse. The inner city population is a mix of young people, students and elderly citizens, with most families living in the suburbs. Four groups dominate, two of which are key renter groups.
• ‘Transient Renters’ and ‘Rental Hubs’ account for 85,540 people in the city of Belfast - one quarter of the total population. ‘Transient Renters’ are typically younger and less affluent, often students and young people searching for employment, renting low-cost properties while they establish themselves. The ‘Rental Hubs’ group is more affluent, a mixture of age groups in professional occupations.
• The latter group is the core target market for a new, high quality, build to rent product. However, over time, it is likely that those individuals currently defined as ‘Transient Renters’ will gain employment and establish themselves in the area, in turn leading them to look for more expensive and desirable rental properties.

Which towns and cities will see the strongest demand in the future?

• CBRE has identified 20 towns and cities across the UK, including Belfast, that will potentially see the highest demand for private rented accommodation over the next 10 years and where there will also be more demand for multifamily developments.
• CBRE built a statistical model to analyse the demand drivers of the private rented sector (PRS) across all local authorities in the UK. The analysis identifies three main factors influencing greater demand for rental accommodation. These are: locations with higher percentage of population aged 25 to 34; high numbers of students; and the relative size of the economy. These three factors have a quantifiable impact on the size of the PRS in a given town or city.
• The findings were then applied to forecasts for each metric to quantify the potential change over the next decade. To further support the findings, CBRE combined the results with three additional metrics, based on CBRE’s Creative Cities Index, projected employment growth, and the current multifamily development pipeline.

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Multifamily residential market

Students

Historically, the rising number has resulted in traditional halls of residence being unable to accommodate the demand. Many students are forced to rent in the private rental sector or houses of multiple occupation (HMOs).

• Following the introduction of student fees in 2012, there were higher expectations for the entire university experience. Student accommodation became a crucial element and now ranks alongside the course, the location and the reputation that each institution offers.
• PBSAs have provided memorable residential experiences for students and offer experiences, health and wellness support, exceptional amenities, social connections, safety and more.
• In Belfast, the market reacted to this lack of supply for good quality PBSA accommodation and over 6,000 bed spaces have been created with further schemes in the development pipeline.
• Build to rent development allows post-graduate professionals the opportunity to continue to connect with people, share common spaces, keep costs down and enjoy the time as young professionals.
• Build to rent is also well suited to young professionals, but often might be couples (could be downsizers) or friends who want more privacy and more personal space but still benefit from a residential community and access to amenities.
• It is clear that there is potential for the multifamily sector to grow within Belfast. This will be driven both by existing investors expanding portfolios and new entrants diversifying from traditional commercial real estate.
• Belfast’s impressive student-to-worker retention ratio will also drive up the demand for new types of housing, much of which will be in the city centre thanks to Belfast City Council’s drive to promote city centre living, with a goal of attracting 66,000 people and 31,600 additional homes by 2035.

Across the UK and Ireland, investment into the residential sector has been strong. Alongside logistics, it is arguably the biggest UK investment trend at the moment. Such is the shift to this type of living and this type of investment, that there is now more equity targeting UK multifamily property [approximately £40billion] than Central London office property.

• Build to rent (BTR) is a new and distinct subsector within the private rental sector. It refers to large blocks of rental homes that are being built as a result of institutional investment. The sector is attracting significant investment and is fast becoming an established segment of the UK and NI housing market.
• UK rental yields are attractive. CBRE estimates these range (on a net basis) from 3.15 per cent at the very prime end to 6 per cent at the more secondary end. A key differentiator among BTR operators (and between BTR and smaller PRS landlords) is management of operational performance. In general, operating costs will account for 24 per cent to 28 per cent of gross income, with larger schemes typically benefitting from greater operational efficiency and economies of scale.
• This market is already worth 103 billion dollars in the United States and in the UK over £6billion was invested into the sector in 2020, up 25 per cent year-on-year. It offers strong international appeal, as investors are attracted to the speed and scale in which BTR can be developed.
• The sector is resilient too, continuing to perform well in the face of the global pandemic. According to MSCI, total residential investment returns in the UK for the year to 2020 were 3.3 per cent This compares with 4.4 per cent for industrial, -1.4 per cent for office and -14.5 per cent for retail. We expect this trend to continue into 2021. Multifamily housing, for example, does not face the same occupier challenges as the more traditional real estate sectors.

UK build to rent (BTR) potential

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How to ensure delivery of BTR to Northern Ireland and Belfast.

• Growing volumes of institutional investment into UK BTR over the last five years is transforming the PRS in London and regional cities but it has yet to make a mark in Belfast. The fundamentals for Belfast are positive and there is still an opportunity for first-mover advantage. While there are no BTR schemes currently under construction, a number of developers and investors are progressing opportunities.
• Northern Ireland, and in particular Belfast, is well-positioned to secure investment into the BTR sector, given the considerable investor interest already demonstrated, and the underlying demand dynamics. This in turn should help to retain the talent pool of highly qualified graduates and workforce generally who require good quality residential accommodation and thus it should help boost the economic vibrancy of the city centre.
• CBRE research demonstrates that there is a strong underlying market need for further city centre living accommodation and for this to include BTR. Although there will be demand at the upper end of the market, there is also demand across the whole price, affordability spectrum for good quality rental accommodation, with a professional management offer.

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Social housing

In Northern Ireland, nearly 38,000 people were on the social housing waiting list for 2019-2020, and almost 30,000 of these are recognised as being in housing stress. 

• New Decade, New Approach gave commitments on a number of areas key in the social housing sector to include the reversal of reclassification of housing associations as public sector bodies, extending welfare mitigation measures and introducing multi-year budgets for the Social Housing Development Programme (SHDP).
• The sector welcomed the reclassification reversal which was achieved in October 2020 and the welfare mitigation payments were extended in April 2020 with no end date and tabled for legislation. In addition, £162million was allocated to the SHDP in 2021-2022, an increase of £26million from the previous year, and the proposed reform of the Northern Ireland Housing Executive will enable investment in the required refurbishment of existing NIHE stock.
• Housing associations in Northern Ireland now own and manage almost 56,000 homes, with 2,635 new social homes completed and 1,118 new homes provided through co-ownership in 2020, exceeding the target development programme by 30 per cent. The sector provides employment for 3,266 full-time staff, with a total turnover of £382million in 2020.
• The Northern Ireland Federation of Housing Associations’ Sector Global Accounts 2020 reports that the total property assets is  £4.2 billion. Meeting the government targets for new housing has been achieved through utilising these to secure private sector borrowing to supplement the Housing Association Grant (HAG). The net book value funded by HAG has been decreasing over the past number of years, from over 70 per cent to 57 per cent at the end of 2019-2020 and 31per cent of the assets are supported through borrowings.
• Traditionally banks in Northern Ireland, including Bank of Ireland, Barclays, Danske, AIB, Santander, Ulster Bank and The Housing Finance Corporation, have provided funding for the sector with the borrowing profile in this table.
• In 2019, the first private placement form of borrowing on the bond market from UK and North American investors was secured by Radius Housing for £105million, providing longer-term financing at competitive rates.
• Other major bank funding over the past five years has included loans of £135m to Clanmil Housing to underpin an eight-year build programme and the European Investment Bank has provided loans of £280m to other housing associations to include Choice Housing and Apex.

Profile of borrowing

Number of years	2020 and amount in £	2019 and amount in £	percentage
Less than a year	£78,905	£69,580	13.40 per cent
One to two years	£83,944	£139,372	(39.76)
Two to five years	£164,202	£133,955	22.58 per cent
Five or more years	£985,705	£809,690	21.74 per cent
Total	1,312,756	1,152,597	13.90 per cent

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Purpose-built student accommodation (PBSA)

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PBSA – a market with demand

After stalling throughout lockdown, investment into the Purpose-Built Student Accommodation (PBSA) sector in the UK is once again active. There is a
high volume of activity with an estimated £750million to £1billion of investment currently in the pipeline.

Despite the pandemic, UCAS data indicates a 2 per cent rise in applications to study in the UK compared to 2019, with applications from international (non-EU) students up 10 per cent year-on-year.

There are over 50,000 students in Belfast, 30,000 of which are studying full time. With just over 6,000 bed spaces available in the city, many of which
have only complete these past few years, it is clear this critical shortage of supply will surely further entice developers to build and invest in what has the
potential to be a very lucrative sector.

Indeed, other regional cities ahead of Belfast in the development cycle have witnessed post-graduate students relocating from PBSA into complimentary
co-living and build to rent (BTR) markets bolstering the economy.

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PBSA market

With a total of 30,240 full-time students studying and living within the city, demand for PBSA accommodation continues to increase and at a pace far greater than the current supply can offer.

CBRE anticipates a strong year ahead for the PBSA sector for these reasons:

• Population number of over 18s in Belfast is rising at one of the fastest rates in Europe. Population growth forecasts over the next 25 years at 5.7 per cent.
• UK and global economies could see a decline after the COVID-19 pandemic. There is an assumption that an increased number of people go to university in a recession, as evidenced during the global financial crisis in 2008-2010, where there was a 30 per cent increase in university applications.
• There may be some students who were put off attending university in 2020-2021 and these will likely defer to 2021-2022.
• There are only 6,400 PBSA bed spaces in Belfast. Compared to the UJ average of 21.04 per cent, 8.93 per cent of students studying in Belfast live in PBSA. The demand is far outweighing supply at present.
• Development pipeline - on the supply side, over 2,359 PBSA beds are currently in the planning pipeline.
• Existing operators include Student Roost, Queen’s University Belfast and LIV Student.
• Institutional investors represented in the sector include Brookefield, CBRE Global Investors, UBS and Knight Frank Investment Management. Recent developer-led schemes and announcements have included Elkstone Partners (156 units at Bradbury Place) and a joint venture between CA Ventures and Harrison Street (251 beds at Botanic Link).

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PBSA market recent developments

The growth in the PBSA sector has been evident across the entire UK. It is estimated that there is over £750m worth of investment currently in the PBSA pipeline.

Belfast’s renowned reputation as a place of learning and higher education means it attracts students from far and near. With the city having higher historic rates of students living in other rented accommodation as opposed to PBSA, there has been a real focus on providing better PBSA to meet the requirements of the students who come to Belfast in their thousands.

PBSA recent developments in Belfast

Wellington Place
Rooms: 340

The Elms, BT1 and BT2
Rooms: 1,223

Botanic Studios
Rooms: 156

John Bell House
Rooms: 413

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PBSA market key country metrics

Metric	UK	Belfast	Ireland (Cork, Dublin, Galway and Limerick)
Student numbers	1.93m full-time students (2019-2020) 26 per cent international students estimated demand pool: 1.21m	30k full-time students (2019-2020) 11.93 per cent international students estimated demand pool: 14.76k	190k full-time students (2019-2020) 14 per cent international students estimated demand pool: 85k
Beds and higher education institutions	690k operational PBSA beds over 167 higher education institutions 90 globally-ranked universities	6.4k operational PBSA beds four higher education institutions two globally-ranked universities	21k operational PBSA beds 23 higher education institutions five globally-ranked universities

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PBSA market UK performance

Investment

Investment into PBSA was strong at the start of 2020, but stalled throughout lockdown. However, this has picked-up since restrictions were eased and a total of eight deals, equating to £280m of investment, have now been agreed since March. There is also an estimated £750 million to £1billion worth of investment in the pipeline that is likely to transact before the end of September.

Demand

UCAS applicant data as at June 2020 showed that total applications in 2020 were 2 per cent higher than 2019. Domestic applications were up 2 per cent, although applications from EU students fell by the same level. Applications from international (non-EU) students were up 10 per cent  year-on- year, with applications from China, India and Hong Kong up 24 per cent, 23 per cent and 14 per cent respectively. On A-level results day, a total of 415,600 people had a confirmed undergraduate place, up 2 per cent from 2019. The current deferral rate of 5 per cent was level to the previous year.

Supply

There remains an acute supply and demand imbalance across most markets, further impacted by construction delays as a result of COVID-19. The focus is on sites that are close to practical completion to ensure they are ready for the start of the academic year, but the funding environment for new development remains challenging. Rents At a portfolio level, most large operators were reporting gross rental growth of approximately 3 per cent year-on-year in August 2020. Rental guarantees on new investment deals is underpinning and stabilising pricing. As a result benchmark yields are broadly level with March 2020. Assets have typically seen a 3 to 5 per cent reduction in capital value where no guarantee is provided.

Outlook

Demand remains resilient, as illustrated by UCAS applicant data, particularly from international students. Investment into the sector is picking up and likely to rebound strongly with a number of new entrants anticipated. Although occupancy levels suffered this year, bookings for the 2020-2021 academic year were broadly in line with 2019-2020. The PBSA sector has demonstrated its resilience throughout this period of uncertainty. It will continue to be supported by strong underlying fundamentals and we expect to see increased levels of investment and out-performance relative to other real estate sectors.

Stable yields

Across most markets, yields are remaining broadly stable. Benchmark yields for London, Super Prime and Prime Regions have stayed the same as they were prior to March 2020. However, there has been some softening in secondary locations. This cannot be solely attributed to the impact of COVID-19, although this has perhaps exacerbated the trend. This polarisation has been a theme of the market for some time and is predominantly fuelled by changes in student application trends and speculation over the financial health of some universities. We expect yields to remain broadly stable in the short term.

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UK and Ireland cities: CRE summaries

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Belfast summary

Total investment volume in 2020: £57.04 million
Number of Deals: seven

Twenty twenty at a glance in Belfast

Investment activity during H2 was again limited due to challenges presented by Covid-19, particularly investors’ ability to inspect properties and undertake due diligence. The investment spend over the second half of the year across all sectors in Northern Ireland totalled £57.3million, bringing the 2020 yearly investment total spend to £136m, a decrease of 36 per cent from 2019. Office, industrial and supermarket yields have remained stable over the year. However, we have seen a considerable softening of yields in the retail sector, primarily driven by the effects of Covid-19 and ongoing structural changes in the sector.

Belfast’s unique selling point (USP)

Belfast continues to have one of the most unique markets in the UK. The city benefits from having two well-renowned universities and an excellent primary and secondary school system. Belfast has built a strong global reputation for being a market leader in a number of sectors including cybersecurity, fintech and film production. The city also benefits from having one of the lowest occupational and operational costs in the UK as well as access to best-in-class ICT infrastructure. We believe that Belfast is uniquely positioned following Brexit to benefit from having dual access to the UK and EU markets.

Investor type by volume in £million since 2015

Investor type	volume in £million
Investor from Northern Ireland	£246.40million
Property company from Great Britain	£92.81million
Investor from Republic of Ireland	£49.67million
International investor	£139.40million
Owner occupier	£113.88million
Institutional investor	£75.16million

Recent deals

Merchant Square, March 2021
Area: 240,204 sq ft
Notable tenants: PwC
Lease term: WAULT c.9.88 Yrs
Rent pa: £4,850,000
Price: £87m
NIY: 5.20 per cent
Purchaser: Albilad Capital

Channel Commercial Park, October 2020
Area: 99,338 sq ft
Notable tenants: Amazon
Lease term: WAULT 10 years
Rent per year: £1,590,000
Price: £27.12million
NIY: 5.5 per cent
Purchaser: UBS Asset Management

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Birmingham 

Total investment volume in 2020 in Birmingham: £859.0725 million
Number of deals: 41

Twenty twenty at a glance in Birmingham

The year 2020 naturally saw a drop in transaction volumes as a result of several lockdowns. Despite the global pandemic and its impact on transactional volumes, the Midlands logistics and distribution sector has continued to strengthen. The dynamics and resilience of the occupational market and ability to secure rental growth, combined with the negative impact on other sectors caused by the pandemic, have driven demand towards industrial and logistics with several transactions achieving stronger prices than pre-COVID-19 levels.

Birmingham’s unique selling point (USP)

Birmingham is experiencing a prolonged period of growth and investment. With over £1.3 billion spent on infrastructure since 2010 and another £3 billion planned for new projects over the next decade, including HS2, the city benefits from a globally integrated transport system. Being ranked with the highest quality of life of any city outside of London and lower living costs, Birmingham is drawing an increasing number of professionals from London, with business and living costs in the city up to 60 per cent lower than the capital. Birmingham’s office market is currently characterised by its lack of stock. This short supply results in high levels of competition when assets become available, supported by strong occupational fundamentals and positive rental growth averaging 3.08 per cent per annum over the past 10 years.

Recent deals in Birmingham

Sainsbury’s, Hams Hall, December 2020
Area: 783,674 sq ft
Notable tenants: Sainsbury’s
Lease term: WAULT 12 and a half years
Rent per year (psf): £5,724,558 (£7.30psf)
Price: £138.51million
NIY: 3.87 per cent
Purchaser: Aviva

55 Colmore Row, October 2020
Notable tenants: RICS, Savills, Pinsent Masons, WeWork
Lease term: WAULT about10.23 years
Rent per year (psf): £5,140,917 
(£32.00psf)
Price: £105million
NIY: 4.85 per cent
Purchaser: Union Investment RE

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Bristol

Total investment volume in 2020: £669.045million
Number of deals: 41

Twenty twenty at a glance in Bristol

Transaction volumes in Bristol’s office sector totalled £325.9million in 14 deals, accounting for 90 per cent of transactions in the wider region last year. Funds were the most dominant investors in the South West office market accounting for 43 per cent of acquisitions, overseas investment also remained strong accounting for 42 per cent of acquisitions. Bristol’s industrial sector saw £76.59million in eight transactions, accounting for 20 per cent of the transactions in the wider region. South West big box prime yields decreased in Quarter 4 2020 by a further 15 bps down to 4.35 per cent. Prime Big Box Rents in Bristol are £7.35 per sq ft.

Bristol's unique selling point (USP)

Bristol is widely regarded as one of the UK’s best cities to live in, as judged by The Sunday Times in 2017. Economically successful and culturally rich, Bristol boasts a diverse job pool built on  aerospace engineering industries, creative media, technology and financial services. Bristol is the South West region’s largest financial centre. The city has developed to become one of the main UK finance hubs outside of London.

Recent deals in Bristol

The Assembly, December 2020
Area: 201,201 sq ft
Notable tenants: BT
Lease term: WAULT 20 years
Rent per year (psf): £6,495,500 
(£32.50psf)
Price: £135million
NIY: 4.7 per cent
Purchaser: LCN Capital Partners

Halo, June 2020
Area: 116,184 sq ft
Notable tenants: Osborne Clarke
Lease term: WAULT c. 8.5 Yrs
Rent per year (psf): £4,136,257 
(£35.60psf)
Price: £70million
NIY: 5.53 per cent
Purchaser: Tesco Pension Fund

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Edinburgh

Total investment volume in 2020 in Edinburgh: £667.798m
Number of deals: 28

Twenty twenty at a glance in Edinburgh

The year witnessed investment volumes decrease against the long-term average – a similar drop in volumes to rest of UK. Traditionally Edinburgh’s investment market is dominated by office and retail activity, but 2020 saw an increased market share for  ‘alternatives’ and industrial reflecting investor priorities. The city’s prime office yield has softened 25bps to 4.75 per cent, in response to the downtown in the economy and the pressures of COVID-19 on the office market.

Edinburgh’s unique selling point (USP)

Edinburgh remains popular  with investors due to its strong investment fundamentals. Scotland’s capital, and a true international city, 59 per cent of its population are educated to a degree level, with Edinburgh having six universities and colleges. With the highest GVA per capita out with London, Edinburgh’s population is predicted to rise 20 per cent by 2040 and it is a city that historically has low levels of unemployment. A lack of development pipeline should ensure rental growth across all sectors meaning investors will continue to be attracted to Edinburgh’s offerings. 

Recent deals in Edinburgh

Aegon HQ, July 2020
Area: 247,500 sq ft
Notable tenants: Aegon
Lease term: WAULT c.17.5 Yrs Rent pa (psf): £7,325,000 per year (£29.60psf)
Price: £133million
NIY: 4.33 per cent
Purchaser: M&G Hyundai AM/Roebuck AM

Quartermile 3, September 2020
Area: 73,429 sq ft
Notable tenants: Cirrus Logic, State Street Bank
Lease term: WAULT c. 7.25 years rent pa (psf): £2,227,957 p/a 
(£29.73psf)
Price: £45million
NIY: 4.33 per cent
Purchaser: KanAm Grund

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Glasgow

Total investment volume in 2020 in Glasgow: £250.605million
Number of deals: 24

Twenty twenty at a glance in Glasgow

Investment volumes declined significantly in 2020 with only five office transactions being completed. Encouragingly, investor demand increased for good quality industrial assets with several significant investment deals going under offer in late Q4 at record yield levels. In contrast, investor demand for high street retail investment remains very limited as yields continue to drift across this sector. Glasgow continues to hold its prime office yield at 5.25 per cent, which still offers the best value of the ‘Big 6’ office markets.

Glasgow's unique selling point (USP)

Glasgow is officially the UK’s largest retail centre by spend outside London’s West End. It is also the largest centre in Scotland in terms of foreign direct investment. On average, office rents are 72 per cent lower and wages 49 per cent lower than London and as a result Glasgow is a well-established home for numerous, globally recognised corporates. The city accommodates 34 per cent of Scotland’s jobs and 28 per cent of Scotland’s business. Conference facilities such as the Scottish Event Campus (SEC) are also best in class. With an under-supply of office, industrial and build to rent (BTR) stock across the city and further rental growth projected across these asset classes, Glasgow continues to be a highly sought-after investment location.

Recent deals in Glasgow

150 Broomielaw, September 2020
Area: 96,750 sq ft
Notable tenants: Scottish Enterprise
Lease term: WAULT c. 4 years
Rent pa (psf): £3,272,726 p/a (£31.76psf)
Price: £40million
NIY: 7.66 per cent
Purchaser: Elite Capital Partners

Guildhall, September 2020
Area: 128,229 sq ft
Notable tenants: Clydesdale Bank, News Corp, Post Office
Lease term: WAULT c. 3.75 years
Rent pa (psf): £2,791,813 p/a (£21.76 psf)
Price: £29.511million
NIY: 9.51 per cent
Purchaser: Maya Capital

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Leeds

Total investment volume in 2020 in Leeds: £348.962million 
Number of deals: 35

Twenty twenty at a glance in Leeds

The Leeds market largely mirrored the national picture in 2020, as office investment volumes dropped significantly, contributing to below average volumes for the year as a whole. This was despite unabated growth in demand for industrial investment, where prime yields sharpened to 4.75 per cent and the biggest problem continued to a be shortage of stock. We envisage the investor preference towards industrial continuing but expect to see a resurgence in office transactions moving into the middle of 2021, driven by the combination of an improving value proposition and a gradual return of the workforce.

Leeds' unique selling point (USP)

The size and diversity of the Leeds economy, combined with a central location and a highly-trained workforce, make it one of the fastest growing and most impressive places to do business in the UK. The city benefits from 38,900 graduates annually, providing direct access to talent, facilitating growth and expansion. The city is also a leader in professional services, digital technologies, manufacturing, healthcare and innovation, resulting in Centre for Cities reporting Leeds to have the fastest-growing private sector jobs rate in the UK. This combination has created significant investor confidence and the Leeds City Region now has over £13billion of investment onsite or in the pipeline.

Recent deals in Leeds

Bridgewater Place, November 2020
Area: 249,900 sq ft
Notable tenants: DWF, Eversheds, EY
Lease term: WAULT circa 4 years
Rent pa (psf): £6,300,000 p/a
(£25.20psf)
Price: £84.5m
NIY: 7.2 per cent
Purchaser: M7

Clarendon Quarter, August 2020
Area: 324 BTR Units
Rent pa (psf): £2,600,000 p/a
Price: £41million
NIY: 4.25 per cent
Purchaser: Aberdeen Standard Investment

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Liverpool

Total investment volume in 2020: £81.745million
Number of deals: 18

Twenty twenty at a glance in Liverpool

Much like the rest of the UK, investment volumes in Liverpool declined over the course of 2020 as the impact of restrictions was felt hard. However, investor appetite post-pandemic should be encouraging. Liverpool is suffering from a critical supply of new Grade A office space and industrial space is highly sought after. Rental growth is expected as a result. Retail occupancy in Liverpool, at a time where the high street is struggling UK-wide, remains relatively high in the city - testament to why retail yields here are much lower than the other main UK cities.

Liverpool's unique selling point (USP)

Liverpool is an integral part of the North West, the UK’s second-largest regional economy, with its own economy worth more than £149billion. Due to Liverpool’s world class infrastructure, high skills base, and low cost of housing, it is identified as having more growth potential than London and many other core regional cities. Liverpool and the surrounding region is the number one recipient of direct foreign investment in the UK outside London and the South East. The area is the base of more than 3,000 businesses, providing compelling evidence of the quality of the city’s business environment and commercial opportunities.

Recent deals in Liverpool

20 Chapel Street, April 2020
Area: 155,000 sq ft
Notable tenants: LFC, EY, Barclays,
Mason Owen
Lease term: WAULT c.5 years
Rent pa (psf): £2,686,000 p/a
(£17.33psf)
Price: £37.25million
NIY: 6.75 per cent
Purchaser: Square Ape/Citibank

Boulevard Industrial Park, March 2020
Area: 219,619 sq ft
Notable tenants: AstraZeneca
Lease Term: WAULT c. 18.2 years
Rent pa (psf): £1,218,368 p/a (£5.54 psf)
Price: £20.8million
NIY: 5.49 per cent
Purchaser: Realty Income Corporation Council

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Manchester

Total investment volume in 2020: £2.172billion
Number of deals: 49

Twenty twenty at a glance in Manchester

Whilst the number of transactions across all major sectors was down in 2020, each sector’s volume was buoyed by large individual sales including The Trafford Centre (rumoured to have sold for just north of £1billion), Manchester Airport Group’s portfolio and BT at New Bailey. In office investment, transactional volume was down in 2020 with nine city centre transactions totalling £310.125million. At the absolute prime end of the market, pre-COVID-19 pricing has been sustained. Core plus assets, on the other hand, saw pricing soften by 50 to 70 bps. The average lot size within the city centre was up to £33.2million as a result of two major office transactions in Quarter 4: BT at New Bailey (£112million) and Tootal Buildings (£77million).
Institutional activity was down in 2020 with just one asset acquired by a UK institution.

Manchester's unique selling point (USP)

Manchester remains attractive to investors due to both its strong investment fundamentals and discount to central London pricing. Manchester has an extremely robust occupational market and has seen office-based employment grow by 31 per cent over the last 10 years. Home to four universities with a student population of over 100,000, Manchester benefits from an exceptional talent pool and also has the highest student retention of any regional city with 75 per cent of students remaining upon graduating. The city has experienced sustained long-term rental growth over the last 20 years with prime rents increasing by 2.80 per cent per annum on average.

Recent deals in Manchester

The Trafford Centre, December 2020
Area: 2.2m sq ft
Notable tenants: John Lewis,
Selfridges, Primark, Next
Rent pa (psf): £87,600,000 p/a
Price: circa £1billion
NIY: 8.76 per cent
Purchaser: CPPIB

BT, New Bailey, December 2020
Area: 175,000 sq ft
Notable tenants: BT
Lease term: WAULT c. 20 years
Rent pa (psf): £4,298,000 p/a (£28 psf)
Price: £112.6million
NIY: 4.25 per cent
Purchaser: Warrington Borough Council

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Key Ireland markets

Total investment volume in 2020: £3.47billion (Cork and Dublin)

Twenty twenty at a glance in Ireland

International investors, such a significant driver of activity in the Irish CRE market over the last decade, simply could not travel to inspect investment opportunities during 2020. As a result, many investment sales campaigns were postponed. Despite this, demand for core assets remained remarkably resilient throughout 2020 and some transactions were completed regardless, with investment spend for the year reaching more than 3.6billion Euro, a decent result considering the challenging conditions. Of this total, 3.2 billion Euro was invested in Dublin, which has consistently accounted for between 85 per cent and 90 per cent of investment in Ireland in each of the last five years. The vast majority of transactions concluded in the Irish market last year were office and residential investments, with multifamily coming into its own during 2020, having firmly demonstrated its counter-cyclical characteristics.

Sector type spend in Ireland

Sector	Percentage
Residential	48 per cent
Office	36 per cent
Industrial	8 per cent
Retail	4 per cent
Hotel	2 per cent
Mixed use	1 per cent
Healthcare	not applicable
Other	not applicable

Investor type in Ireland markets in 2020

Investor type	Percentage
Industrial fund	41 per cent
Investment manager	9 per cent
Private investor	4 per cent
Property fund	9 per cent
REIT	2 per cent
Sovereign wealth fund	5 per cent
Other investor type	26 per cent
Asset manager	4 per cent