Real estate market performance and outlook: Investment market
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.
- £132m of CRE investment takes place in Belfast each year on average.
- property returns of 7.7 per cent for Belfast in 2019 exceeding that of other UK nations.
- yields equate to 6.28 per cent averaged against three main property asset classes
- 71 per cent of investors reinvest
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 |
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).
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 |
