Northern Ireland Report

Home , Belfast, Holywood Exchange, Sprucefield

Savills Ireland – 2021 Northern Ireland SPOTLIGHT Savills Research Report

Retail • Office • Residential • Investment Northern Ireland Report

Economic Overview COVID-19 has had a severe impact on economic activity in Northern Ireland Trade and Cooperation Agreement becomes less problematic, so the challenge in 2020, as it has worldwide. However, a resilient labour market, significant is to ensure firms survive to be able to reap the benefits. policy actions and a large public sector provide a level of insulation making Latest estimates show the population of Northern Ireland is expanding at a the impact of COVID-19 much less severe than it otherwise would have been. rate of 0.6% per annum. Although slower than in the Republic of Ireland (ROI) Looking forward, a strong consumer bounce back is expected in 2021 as the where the growth rate is 1.0%, this is higher than the EU average of 0.2%. vaccination programme takes effect and the implementation of the EU-UK

Figure 1: European Population Growth – Annual Growth

4.0

3.5

3.0

2.5

2.0

1.5

% Change Y/Y 1.0

0.5

-0.5

-1.0

Italy Ma lta Spain EU 28 Poland GreeceSerbia Iceland CyprusIreland Norway Austria Estonia FinlandFrance Mo ldova Sweden Denmark BelgiumGermanyCzechia SlovakiaSlovenia PortugalHungary Romania Luxembourg Switzerland Netherlands

UnitedNorthern Kingdom Ireland

Employment reduced slightly, with a decrease of 4,000 (-0.5% Y/Y). More Figure 2). Private sector jobs decreased over the year (-0.9% or -5,160 jobs). The than 84,890 net new jobs have now been created since the low watermark in Q1 annual decrease in private sector jobs was the first annual decrease seen since 2012 and there are over 40,000 more jobs than at the last peak in Q4 2007 (see June 2012.

Figure 2: Total Employee Jobs

800,000

780,000

760,000

740,000

720,000

700,000

680,000

660,000

640,000 Q1 2006 Q3 2006 Q1 2007 Q3 2007 Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015 Q3 2015 Q1 2016 Q3 2016 Q1 2017 Q3 2017 Q1 2018 Q3 2018 Q1 2019 Q3 2019 Q1 2020 Q3 2020

2 Northern Ireland Report

In the public sector, there was an increase of 0.5% (+1,030 jobs) over the year structurally high number of students, retirees and carers in the home and as a to 211,740 jobs. result it had the lowest unemployment rate, the lowest employment rate and The latest NI seasonally adjusted unemployment rate (the proportion of the highest economic inactivity rate of all the UK regions. economically active people aged 16+ who were unemployed) for the period The Northern Ireland Composite Economic Index (which is broadly October-December 2020 stands at 3.6%. The unemployment rate increased equivalent to Gross Domestic Product or GDP1) fell back by 2.9% % Y/Y in Q3 by 1.2% over the year. The proportion of people aged 16 to 64 in work (the 2020, 15% up on Q2. As Figure 3 (below) shows, Q2 2020 witnessed a dramatic employment rate) decreased over the year by 3% to 69.4%. The economic decline in the index of 16.9%. The private sector, which had driven earlier gains, inactivity rate (the proportion of people aged 16 to 64 who were not working contracted by -3.9% Y/Y in Q3 2020. Public sector activity fared better, growing and not seeking or available to work) over the year by 2.1% to 28.0%. NI has a by 0.5% Y/Y in Q3 2020.

Figure 3: Northern Ireland Composite Economic Index – Annual Growth

-5%

Y/T change -10%

-15%

-20% Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020

Northern Ireland’s economy has historically been held back by political in early 2020) should in due course be major positives for the Northern Irish instability and, more recently, by Brexit concerns. Therefore, the successful economy and its property markets once the negative effects of COVID-19 conclusion of an EU-UK Trade and Cooperation Agreement and the dissipate. continuation of power-sharing in the Stormont Assembly (which was restored

1 It is not possible to provide a comprehensive measure of quarterly Gross Domestic Product for Northern Ireland due to the lack of available data sources (see https://www.nisra. gov.uk/sites/nisra.gov.uk/files/publications/ni-composite-economic-index-paper-q3-2012.pdf )

3 Northern Ireland Report

Brexit and the Pandemic and their Effects on Northern Ireland

In response to the pandemic, the Bank of England reduced the Bank Rate represents the most favourable outcome for Northern Ireland. The reasons by 0.65%, bringing it to 0.10%. It reinforced its existing asset purchase for this are discussed below. programmes as well as creating new ones (as did the Fed and the ECB). At 1. Retaining cross-border Activity: ROI is NI’s single largest export its February 2021 meeting the Bank decided against dropping interest rates market in terms of individual countries, making up 6% of all sales by NI into negative territory. The economy would probably shrink by 4% in the businesses. Food, live animals, machinery and transport equipment are first three months of 2021, the Bank of England stated, but it was expected the dominant exports. to recover rapidly towards pre-COVID levels over the course of 2021. 2. Foreign Direct Investment (FDI): FDI can play an important role Brexit happened on 31 January 2020 with a transition period to 31 in boosting output and employment and attracting talent and having December 2020. After protracted and exhausting negotiations, the EU access to the Single Market makes NI a more attractive location for and UK reached agreement on their future relationship on Christmas Eve, multinational corporations. NI offers significantly lower costs than thereby avoiding a “hard Brexit” when the UK’s transition period ended. The London or Dublin and has established expertise in sectors as diverse as free trade deal means Britain and the 27-nation EU can continue to trade in legal services, cyber security, life sciences and advanced manufacturing goods without tariffs or quotas. The Northern Ireland part of the deal - the and engineering. Protocol - keeps Northern Ireland in the EU’s single market for goods and 3. Political Stability: The 1998 Good Friday Agreement (GFA) brought EU customs rules are enforced at its ports, to prevent a hard border between greater stability to Northern Ireland by removing the need for military Northern Ireland and the Republic of Ireland. checkpoints north and south of the border and establishing a local Goods moving from Great Britain to Northern Ireland are required power-sharing arrangement. As part of the negotiations that resulted to complete both import declarations and Entry Summary Declarations in the EU-UK Trade and Cooperation Agreement being agreed on because the UK will be applying the EU’s custom code in Northern Ireland Christmas Eve, the EU and UK agreed a Northern Ireland Protocol that and this causes additional administrative costs for businesses. There there would be no new checks on goods crossing the border between NI are both fixed and variable costs for firms and consequently these costs and ROI, thereby avoiding a hard border. are likely to be a larger proportion of total operating costs for small and 4. GB-NI trade: Under the terms of the Northern Ireland Protocol medium enterprises (SMEs), which means that SMEs are disproportionately goods entering NI from GB are subject to new checks, leading impacted. Trade in food and plant products from Great Britain to some exporters in GB to scale back or cease deliveries, blaming the Northern Ireland has faced the greatest disruption since 1 January 2021. additional paperwork and costs involved. At a political level, there has This disruption was foreseen and about £500m is being spent on a Trader been some uncertainty over the practical application of the Northern Support Service to help with customs and a Movement Assistance Service Ireland Protocol and some friction between concerned parties. These to help with the certification costs of agri-food goods. There are also “grace difficulties are real, but Westminster and Brussels can and, in our view, periods”, meaning some of the new processes are being phased in. will resolve them in order to deliver the benefits of a close economic In our view, retaining a close economic partnership with the EU partnership between the EU and Northern Ireland.

NI offers significantly lower costs than London or Dublin

Channel Commercial Park, sold by Savills

€ € Northern Ireland Report

Retail Market

RETAIL ECONOMY Tim Hortons The major change we saw last year was the acceleration of the trend towards online shopping. The UK saw the highest increase in online sales since 2007, according to IMRG Capgemini Online Retail Index, up 37% in 2020. The growth in online sales stands in contrast to the decline in footfall and turnover in physical retail and therefore retailers with strong “omnichannel” offerings could offset one against the other. At Next stores, for example, sales were down 43% in the nine weeks to 26 December, but online sales rose 36% year on year. However, non-essential retailers with no online platform have been significantly impacted throughout the pandemic and have been unable to trade for extended periods. Three quarters of Primark stores in the UK and Europe are temporarily closed, including 190 stores in the UK, and Primark has reported a 30% fall in sales in the 16 weeks to 2 January.

BELFAST CITY CENTRE 2019 saw a positive flurry of new retailer entrants including Anthropologie, Vans, Jaeger, O’Neill’s Sports and Flannels. However, 2020 did not go well and the move to remote working by office-based staff combined with the lockdowns imposed on non-essential retail and hospitality has had a devastating impact on the city centre and its retailers. City centre retail feeds off its resident and working populations, schools, universities and tourist visitors. Its success relies on a comprehensive retail and leisure offering including mainstream mass-market powerhouse retailers such as Primark, M&S, Zara and Next. But, just as significantly, it relies on its smaller independent retailers, service providers, coffee shops, cafes, hotels, bars and restaurants. Without this mix, city centre retail struggles and this was notable when hospitality was closed but non-essential retail remained open in November. In addition to greater online shopping, consumers have shown a preference to shop more locally and at out-of-town retail parks for convenience and the perception of a safer environment for social distancing. The pandemic lockdown brought about a surge in retailer administrations, CVAs and liquidations which has seen prominent retailers such as Arcadia JD Belfast shop front Group, Easons and Debenhams closing their outlets potentially for the last time in the city. Other retailers have exercised break options or allowed their leases to expire and thereby exited the city (these include Tiger, Jaeger, Paperchase, Cath Kidston, DW Sports and Carphone Warehouse). This sharp increase in vacancy in the city centre core will exert downward pressure on rents until we see recovery in the sector as landlords compete for the limited retailer demand. On a more positive note, 2020 saw the handover of JD Sports new 33,000sqft flagship store on Castle Place. Castlecourt maintained heathy occupancy with new store openings for Del Piero’s, Cheesy Mix and B-Perfect as did Victoria Square with new openings for Body Shop, L’Occitane, Jaeger, BTY and Crew Clothing.

SHOPPING CENTRES Shopping centres, in particular closed malls with more intimate shopping environments adapted quickly following the first lockdown to create a safer shopping experience. The presence of an essential retailer has positively influenced the performance of shopping centres. For example, grocery-anchored centres such as Bloomfield and Forestside experienced a fall in footfall of only 10% against the UK weekly average fall which exceeded 50%. Despite the difficult trading conditions, a number of centres secured new packages (such as rent-free periods or deferments) in exchange for enhanced lettings: for example, Sports Direct opened new stores at Buttercrane Newry lease terms and commitments, giving retailers respite from pressing and Bow Street Mall Lisburn; Toytown acquired two new stores at Abbeycentre cashflow problems. “Covid clauses”, whereby rent is waived or abated during and Lisnagilvein Shopping centre; Cardland replaced Clintons cards at imposed lockdowns, have now become a more common request when new Forestside; and DV8 took over the former H&M store at Bloomfield in Bangor. lettings are being negotiated. Transactions focused on lease re-gears, where landlords offered supporting

5 Northern Ireland Report

Holywood Exchange, acquired by Savills

OUT OF TOWN Those occupiers who continued trading throughout the restrictions were only The fortunes of retail warehouse occupiers were affected by whether they able to offer takeaway or the innovative dine at home meal kits. This approach were considered essential (and therefore allowed to trade) or not during the was particularly prevalent among local independent restaurants. lockdowns. For those considered essential, the pandemic sometimes proved As with the retail sector, 2020 brought about several significant company to be beneficial for retail parks because shopping is more easily facilitated: restructures. One of the most noteworthy was the Restaurant Group, a leading consumers could drive there directly, and the large floorplates of the company in the UK’s casual dining sector, which went into CVA in June 2020 warehouses enabled easier socially distanced shopping. with the aim of reducing the size of its portfolio, which in NI principally Discount/value retailers as well as traditional bulky goods retailers were comprises Frankie & Benny’s. Caffè Nero entered a similar restructuring all deemed essential. The imposed lockdown encouraged DIY projects and process in the final quarter of last year. Its CVA, approved in December, would the replacement of household products, which helped retailers offering those see landlords receiving 30p for every £1 of rent they are owed and most stores goods; on the other hand, Harveys, Oak Furnitureland and DW Sports went moving to a turnover rent model. into administration. With cost pressures mounting and prolonged closures or social distancing Value retailers such as Home Bargains and B&M continued to expand. The measures impacting business, Costa, like many F&B occupiers spent a large most striking transaction in this sector was the opening of the flagship Range part of 2020 reviewing their estate with the aim of reducing cost through store (approx. 65,000 sq ft) on Boucher Road in Belfast. Poundland are also restructuring leases. Northern Ireland’s first Subway drive-through on actively seeking space out of town and acquired a new unit in the Braidwater Belfast’s Boucher Road closed its doors last year after only 12 months of Retail Park in Ballymena in November 2020. We expect continued expansion trading. from these occupiers throughout 2021. Nevertheless, there were some new transactions in 2020. Tim Horton’s In the furniture sector EZ Living agreed a deal to upsize into a 20,000 sqft opened a new site in Cookstown at the end of the year and completed the unit on Shane Retail Park, the prime bulky goods scheme in Belfast, whilst My acquisition of a new drive-through site in Bloomfield, Bangor. Tim Horton’s Time Furniture is seeking new outlets throughout Northern Ireland. also started construction of a new site adjacent to Riverside Retail Park In the food store sector Lidl, Food Warehouse and Lynas Foods continued to in Coleraine which is scheduled to open in the early part of 2021. Nando’s seek new opportunities. Lidl secured a number of sites for their new concept exchanged a deal in 2020 to open a new restaurant within Riverside Retail stores of approx. 22,000 sq ft including one at Hillview Retail Park on the Park. Crumlin Road in Belfast, a 4.5-acre site in Carryduff and a site on the Boucher Drive-through sites continue to be the main focus for the coffee and Road. In November, Lidl opened a store on the Holywood Exchange Retail Park restaurant operators and account for the vast majority of new transactions in the outskirts of Belfast. throughout 2020. McDonalds opened a 24-hour dual-lane drive-through in Derriaghy between Lisburn and Belfast bringing its total number of FOOD & BEVERAGE restaurants in N.I to 32. McDonalds also confirmed last year its plans to The food and beverage sector endured an exceptionally challenging year as the construct a new two level, 5,300 sqft restaurant adjacent to Tesco on the COVID-19 pandemic resulted in enforced closure for the better part of the year. Newtownabreda Road.

6 Northern Ireland Report

35 DP Interior Paper Exchange

Office Market

Office lettings in 2020 totalled 140,083 sqft, which is an historic low. There This puts the new build development pipeline at a healthy 764,000 sqft of were 28 transactions in total and the dominant sector was Technology, Media which 450,000 sqft will likely be delivered towards the end of 2021. There are and Telecoms (TMT), reflecting Belfast’s attraction as a centre for tech, three major refurbishment projects due for delivery in 2021: The Kelvin, The particularly cyber-security. TMT firms accounted for 48% of the total take-up, Vantage and 35DP which together will provide 130,000 sqft of space. with the next largest sector (financial services) coming in at 26% of take-up. There was a notable reduction in the average transaction size within the RENTS market. Of the 28 lettings across the 12-month period only four breached the Office rents in Belfast have been on a steady upward trajectory as a result of 10,000 sqft mark; a further four deals fell within the 5,000 and 9,999 sqft a low vacancy rate, which stood at 7.2% in 2019 and 6.1% in 2020. The paucity band and 20 individual deals came in at a level less than 4,999 sqft The average of new build development in the city placed upward pressure on the rents for transaction size is approximately 5,000 sqft, considerably lower than the 2019 refurbished stock leading to a healthy recycling of older stock. average of approximately 8,000 sqft which suggests that larger occupiers were The average pricing for refurbished accommodation lies in the range more cautious than their smaller counterparts. of £18.00 psf to £20.00 psf, with some of the most extensive refurbishment Encouragingly, a number of firms in Belfast continued to recruit staff even projects exceeding this level. These “virtual” new-builds have achieved levels under remote-working conditions, and this should give confidence to the wider of £23.00 psf and so it will interesting to see where those projects under- market. construction in 2021 emerge once marketing commences; however, it is our The events of 2020 have undoubtedly reshaped the office landscape. It is belief this level could be exceeded for the best product. too early to be definitive but is seems probable that a hybrid working model With the arrival of new lockdown measures at the start of 2021, it appears is emerging. This new model will be employee-led and business specific and the year will be off to a slow start as government-imposed remote working has will emphasise the importance of place-making, community and collaboration. been shown to delay decision-making and will slow the return to repopulating In some cases, the occupier’s physical footprint may shrink; however, the offices in any significant way for at least the first six months of 2021. importance of a central office around which the business operations can That said, we are seeing some progressive companies planning ahead and coalesce now appears to be recognised across the sector. making enquiries that speak to their long-term aspirations and the second half of 2021 could see a more widespread pickup in demand in-line with the DEVELOPMENT expected economic improvement. At present there are four grade-A, new-build offices under construction.

Table 1 Offices under construction

Building Size Developer / Builder Completion Date

The Ewart, Bedford Square 213,000 sqft (part pre-let) MRP / McAleer & Rushe Q4 2021

City Quays 3, Belfast Harbour 250,000 sqft Belfast Harbour / Farrans Q4 2021

Belfast Harbour and Titanic Quarter Ltd Olympic House, Titanic Quarter 146,000 sqft Q4 2021 /O’Hare and McGovern

The Paper Exchange, Chichester Street 155,000 sqft Wirefox / Heron Bros December 2022

7 Northern Ireland Report

Residential Market

TRANSACTIONS DEMAND Covid restrictions almost brought activity to a halt in Q2 but demand In the long term, demand stems from population growth (which is above bounced back strongly in the second half of the year, spurred by the pausing average in the EU) and household formation (average household sizes are of stamp duty until Spring 2021. Residential transactions, which averaged 2.5, higher than the European norm). approximately 26,000 per year in the previous five years, totalled over 17,000 in the twelve months to Q3 2020, largely as a result of the lockdown in Q2 PRICES which saw a decrease of approximately 4,500 transactions when compared to The RICS has reported more buyer enquiries than instructions to sell across the same quarter in 2019. the UK the RICS has reported more buyer enquiries than instructions to sell, pushing prices upwards. The residential market witnessed its SUPPLY strongest annual growth in 2020 in six years, with the average house price 6,230 residential dwellings were completed in Northern Ireland over the now sitting at £230,920 in the UK as a whole. This represents an increase of twelve months to September 2020, which represents a decrease of 20% on the 7.3% annually, after a 0.8% increase in December alone. Northern Ireland 7,630 built during the same period in the previous year. witnessed annual growth of 5.9% for the same period. The standardised average price of a property in Northern Ireland is now £143,205.

Figure 4: New Dwelling Starts - Rolling 4 Quarter Sum

18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

- Q4 2005 Q2 2006 Q4 2006 Q2 2007 Q4 2007 Q2 2008 Q4 2008 Q2 2009 Q4 2009 Q2 2010 Q4 2010 Q2 2011 Q4 2011 Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 Q2 2015 Q4 2015 Q2 2016 Q4 2016 Q2 2017 Q4 2017 Q2 2018 Q4 2018 Q2 2019 Q4 2019 Q2 2020 Q4 2020

8 Northern Ireland Report

Residential property has provided superior risk-adjusted returns over the long term

Newgrove Estate sold by Savills

PRS OVERVIEW residential property has provided superior risk-adjusted returns over The Build-to-Rent (BTR) market is supported by house price growth, other forms of real estate over the longer term (source: MSCI/IPD indices). which makes home ownership unaffordable for many, and changing generational preferences, with younger generations increasingly citing WHY BELFAST FOR PRS “increased flexibility” and “not wanting to be stuck in one location” as key Belfast has a strong track record of inward investment (in Fintech, Cyber reasons to rent. House price growth has vastly outstripped wage growth, Security and other sectors) and a well-educated student base. The cost of BTR also benefits from supportive Government Policy. The living is lower than average in the UK. Government is determined to stimulate growth in the BTR sector, with a The city centre’s residential market is under-developed, offering a focus on incentivising institutional investors to add to the housing supply. distinct first-mover advantage. The reasons are historical: for years rents For institutional investors, BTR offers attractive defensive characteristics were below where they needed to be to make BTR development financially because the asset class is seen as resilient during periods of economic viable but that is no longer the case. contraction. Its returns tend to be less volatile too, which means that

Figure 5: NI House Price Index Annual % Change

10% 9% 8% 7% 6% 5% 4% 3% 2% € 1% 0%€ Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020

9 Northern Ireland Report

Investment Market

Figure 6: Investment Market NI Turnover

600

500

400

300 £m

200

100

0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Despite the ongoing pandemic and uncertainty surrounding Brexit, a total of for c.£8m (NIY 13.5%), and Phase B Orritor Road Retail Park for £3.15m. £136m worth of income-producing commercial real estate assets transacted in The prolonged lockdown resulted in decreased sales over the Christmas Northern Ireland in 2020. This represents a decrease of 37% from last year’s period and will negatively affect retailers’ margins in 2021. Retailers’ covenant figures. strength, void rates and ERVs will therefore be at the forefront of landlords Following a consistent trend since 2010, Retail was again at the forefront, and investors’ minds and decision-making processes in 2021. accounting for over half of total CRE volumes at a combined value of £68m. Industrial also proved to be a strong investment sector accounting for 44% Retail parks accounted for 40% of 2020 total turnover with three transacting (£59.5m) of total CRE volumes, dominated by the sale of the Royal Mail sorting across the province for a combined figure c.£54m. The sale of Abbey Retail Park centre, Mallusk in Q1 for c.£30m (NIY 4.7%) and the Amazon Distribution at £33m (NIY 9.0%) in Q1 was the largest transaction in 2020 and significantly Facility at Titanic Quarter in Q4 for c. £27m (NIY 5.5%). Meanwhile, offices boosted investment volumes; however, this was not the only significant retail proved to be the worst performing investment sector in 2020 accounting for transaction. Other notable retail transactions include the sale of Holywood only 6.3% of total CRE volumes, with a combined value of £8.6m. Exchange Retail Park for c.£17.92m (NIY 9.75%), Currys/PC World Sprucefield

Table 2: Top Five Investment Deals NI (2020)

Asset Sector Price

Abbey Retail Park Retail c.£33,000,000

Royal Mail, Mallusk Industrial c.£30,000,000

Amazon Distribution Facility* Industrial c.£27,000,000

Holywood Exchange* Retail c.£18,000,000

Curry’s Sprucefield* Retail c.£8,000,000

*Savills involved

10 Northern Ireland Report

Figure 7: Investment Turnover by Sector

Retail Parks Retail Shops Offices Industrial

The Q1 investment volumes in Northern Ireland indicate a sector which was However, following the strong start to the year, the investment market performing robustly prior to the announcement of a UK wide lockdown on stagnated throughout Q2 and Q3 as a result of the nationwide lockdown. March 23rd. A total of £73.5m worth of CRE assets transacted in Q1, which is The lockdown prevented investors from travelling, the most basic of visual an increase of 40% from Q1 2019 figures. The off-market purchase of the Royal assessments became almost impossible, and tenanted buildings became vacant Mail Distribution Hub at Mallusk by a private investor, as well as the purchase in many cases. of Abbey Retail Park by Canadian Investor Slate Asset Management, make up As restrictions eased, investment volumes recovered sharply in Q4. the bulk the volume traded in Q1. Slate Asset Management is a new entrant to Nevertheless, global activity remains considerably below pre-COVID levels as the NI investment market and their purchase of Abbey Retail Park was their investors continue to react cautiously to the ongoing uncertainty caused by the first European acquisition outside their German grocery real estate strategy. pandemic and the disparity of recovery across markets.

Figure 8: Investment Volume per Quarter in 2020

40 £m

0 Q1 Q2 Q3 Q4

Investment volumes recovered sharply in Q4.

€ € Northern Ireland Report

Savills team Outlook Please contact us for further information

2021 will be shaped primarily by Brexit, the acceleration of Ben Turtle structural change in the retail sector and the pandemic. Director, Head of Office BREXIT & Investment Brexit will continue to have a profound effect on the Savills Belfast +44 28 9026 8006 future of Northern Ireland long after the virus has passed. [email protected] Freedom of movement of people and goods across the Irish border is of paramount importance, both economically in Paul Wilson terms of Northern Ireland’s deeply integrated trading links Director, with the South and politically in terms of the Good Friday Retail Agency Agreement. NI’s unique position of being within the UK Savills sold Currys/PC World Sprucefield. Savills Belfast and the EU single market for goods is positive news for FDI. +44 28 9026 7828 [email protected] It also offers opportunities to substitute domestic goods PANDEMIC for some goods which face new administrative burdens The COVID-19 vaccination programme has begun and aims Neal Morrison entering the North. to vaccinate all nine of the identified priority groups first Director, before moving to mass vaccination during the summer. As Commercial STRUCTURAL CHANGE IN RETAIL the programme progresses and a degree of normality is re- Agency COVID-19 has accelerated the seismic changes in the established, pent-up consumer demand is expected to give Savills Belfast +44 28 9026 7824 retail sector. The rise in internet retailing has been at the a major impetus to the economy, especially in the second [email protected] forefront of retail evolution for a number of years and at half of 2021. the end of 2019 accounted for 19% of retail spend in the In addition, people are more likely to take their summer Brian Gaffney UK. Online sales spiked during the first lockdown, briefly holidays at home and this will further boost local spending, Divisional accounting for one third of all UK retail sales. When providing welcome support to high street retailers in Director, lockdown measures have finally eased, internet retailing provincial towns. The pandemic will also affect the Property is forecast to settle somewhere between pre-Covid and residential, office and investment markets. Management Savills Belfast peak lockdown levels, with a penetration rate of around Residential: in Savills latest survey of buyers and sellers, +44 28 9026 7821 23% likely by the end of 2021, according to GlobalData. one in five respondents claimed the vaccine rollout would [email protected] Notably, this is more than five years earlier than previously boost their commitment to move. The survey suggests that anticipated. demand for larger houses with access to green areas will Jason Thompson Physical retail still has its place, of course, particularly continue throughout 2021. Divisional supermarkets and grocery-anchored retail. Discounters Office: with the arrival of new lockdown measures at Director, like Lidl were considered essential and traded throughout the start of 2021, it appears the year will be off to a slow Professional the lockdown, potentially encouraging them to grow their start. Government-imposed remote working tends to Services +44 28 9026 7827 footprint. For other forms, physical retail may take on new delay decision-making and will slow a return to offices in [email protected] forms such as being consumer hubs that offer more than any significant way for at least the first six months of the just shopping, possibly meeting other needs, such as health, year. That said, we are seeing some progressive companies John Ring education and wellbeing. Demand exists for new retail planning ahead and making enquiries that speak to their Director, concepts that fit with evolved consumer preferences and long-term aspirations, which is encouraging that the Research dynamic, mixed-use retail spaces can thrive. second half of 2021. +353 (0)1 618 1431 Education and senior living could form part of the future Investment: across the world, the rollout of COVID-19 [email protected] mix. Education providers - schools, colleges, universities - vaccination programmes should make 2021 a year of global are fundamental components to the success of towns and economic recovery, leading to a pickup in investment Savills plc: Savills plc is a global real cities across the UK. There are examples where colleges activity. Investors will be alert to pricing levels and the estate services provider listed on the London Stock Exchange. We and universities have moved to town or city centres. Ulster yield pick-up which NI offers in comparison to other parts have an international network of more than 700 offices and University, for instance, is in the process of moving their of the UK will prove attractive. The pre-pandemic trend associates throughout the entire campus to Belfast city centre, adjacent to Castle towards alternative asset classes will accelerate in 2021, Americas, the UK, continental Europe, Asia Pacific, Africa and the Court Shopping Centre. and more attention will be paid to data centres, assets with Middle East, offering a broad range of specialist advisory, management Repurposing surplus shopping centre storage space a health or science badge and multifamily housing. While and transactional services to clients all over the world. This into self-storage or bringing NHS uses into shopping most of these segments are still relatively small in NI, they report is for general informative centres, making them a new form of anchor tenant bringing offer the change of use opportunity that retail landlords purposes only. It may not be published, reproduced or quoted in additional visitors to that location. may seek out next year and beyond. part or in whole, nor may it be used as a basis for any contract, Physical retail’s role within an “omnichannel” framework prospectus, agreement or other document without prior consent. will also continue because such retailers have found that FINAL COMMENT While every effort has been made online engagement is typically much higher in areas Overall, 2020 was a challenging year for commercial real to ensure its accuracy, Savills accepts no liability whatsoever for where they have physical stores. The ongoing structural estate in Northern Ireland. The economy, which had been any direct or consequential loss arising from its use. The content is change in retail combined with Brexit effects will likely slowing down in the fourth quarter of 2019, was upended strictly copyright and reproduction of the whole or part of it in any form lead to substantial changes to distribution networks while by the pandemic. The recovery in the third quarter of 2020 is prohibited without written Amazon’s proposed new fulfilment centre outside Dublin gives an indication of what is possible when the economy permission from Savills Research. could help Amazon bypass Brexit delays and speed up moves back towards normality, something which is likely deliveries to Irish customers on both sides of the border. to happen in the second half of 2021 as the effects of the The changing role of physical retail space may reduce vaccination programme become evident and the politicians revenue per square foot which could lead to shorter lease achieve a smoother implementation of the EU-UK Trade lengths and increasing use of hybrid leases, where the rent and Cooperation Agreement. The retail sector will continue payable is a function of the turnover or profit the shop to adjust to profound structural change and will emerge achieves. from 2021 in a stronger position.