Retail market
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
- Prime rents: £125 PSF Zone A
- Prime yields: 7.5 per cent
- Five-year volume investment figure: £216.14million
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.
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
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).
