Quarter 4, 2018 The Market in Numbers Investment 4 m £165 £165 million of investment Q transactions during 2018 & 2019 OUTLOOK THE Office LISNEY BELFAST COMMERCIAL sq ft PROPERTY 885k Annual take up throughout Belfast REPORT City Centre in 2018 Retail Prime Retail 10.2% Vacancy Belfast prime retail vacancy up 1.0% to 10.2% Industrial 2m+sq ft The Difference Annual take in 2018 Investment After a resilient summer, dominated by high Investment Volumes, Q4 2017 - Q4 2018 profile office investment quarter 4 saw £100m+ of new product come to market, much of 140m which was focused on the office sector with 120m vendors buoyed by a strong performance over the Overview 100m preceding months. 80m 80m 70m 60m 55m Million £ (Sterling) 40m 30m Q4 Volumes were down significantly to £30m 20m 10m with the largest transaction of the quarter being the sale of Bow Street Mall in Lisburn Q4 Q1 Q2 Q3 Q4 2017 2018 2018 2018 2018 to a private Irish investor for £12.25. These transactions bring our annual volumes to £165m which is down from the £305m traded in 2017. Activity However if we take out the single largest transaction of 2017, being the £123m sale of Castlecourt then the drop is much less pronounced, though still down on our 5 year average of £300m which is unsurprising in the current macro environment. NI investment volumes are traditionally dominated by retail and the sector, as a result, has been particularly hit by cost price inflation and tenant defaults over the last 12 months. Northern Ireland therefore, like the rest of the UK, has seen investment volumes and investor appetite drop off, especially outside of prime pitches. Metro Building, Donegall Square South, Belfast Investment Volumes, 2014 - 2018 500m 420m 400m 400m 305m 300m 200m 213m Million £ (Sterling) 100m 165m 2014 2015 2016 2017 2018 Notable Transactions Throughout 2018 Property Sector Value Metro Building, Donegall Square South, Belfast Office £21.80 Next and Easons, Donegall Place, Belfast Retail £16.40 Obel 68, Donegall Quay, Belfast Office £15.20 Bow Street Mall, Lisburn Shopping Centre £12.25 Castlebawn Retail Park, Newtownards Retail Park £8.5m Page 2 The Lisney Northern Ireland Commercial Property Report Q4 2018 & 2019 Outlook Investment Where we can point to positivity is the office sector, Lisney’s sales of both the Obel 68 and the Metro Building saw some of the strongest 2019 pricing ever achieved locally with a depth of local, Outlook national and international demand, demonstrating liquidity for good quality, appropriately priced product. The importance of pricing continues to be a theme with investors, our key local “USP” is maintaining a discount or “yield gap” between NI and the rest of the UK, where vendors are cognisant of this, there is undoubtedly demand. Obel 68, Donegall Quay, Belfast Office The office market has continued in record look south and note that there has been a 93% breaking fashion with take up now approaching increase in ‘co-working’ space take up in Dublin 885,000 sq ft as the year draws to a close. To over the past 18 months. put this into context the 5 year average take-up is approximately 460,000 sq ft, emphasising the The most notable letting of the quarter was to Overview strength of demand and perhaps deflating the PWC, as media reports have indicated that the impression that ‘Brexit’ is causing uncertainty deal will make them the anchor tenant in the amongst office occupiers and the business Merchant Square development. Currently based community. in Waterfront Plaza, PWC’s existing 2,000 staff will relocate to Merchant Square in the summer The trend of Tech and Digital domination of 2020. When the development is completed continues to be a real positive for the Belfast it will include 200,000 sq ft of grade A office market whilst ‘co-working’ space operators accommodation across nine floors, with space have also been active. Wework’s global rise in for more than 3,000 people – the scheme is being that particular sector has been rapid, with many developed by Oakland Holdings. PWC confirmed landlords and investors waiting to see if that future plans for further investment and job there is a potential structural shift within the creation meant that it was running out of space in Activity general office market, many of whom will its current Belfast headquarters. Proposed development at The ‘Sixth’ Page 3 The Lisney Northern Ireland Commercial Property Report Q4 2018 & 2019 Outlook Office A continuing trend within the Belfast office Annual Office Take Up 2013 -2018 is a lack of supply, with no ‘new’ stock 1m scheduled to be available to occupy through the 2019 remainder of 2018. We do however expect to see 900k 885k Outlook supply levels grow in the foreseeable future with 800k the arrival of a number of refurbished buildings 700k including Chichester House (48,000 sq ft). 600k 535k There have been significant letting at River House 500k 400k with both TLT and Clockwise taking space with Square Feet 400k 348k other new occupiers to be confirmed. 326k 300k 209k A significant mixed use scheme has also been 200k launched by Castlebrooke Investments ‘Tribeca’ 100k a 12-acre site beside St Anne’s Cathedral and bordering Royal Avenue, Donegall Street, Lower 2013 2014 2015 2016 2017 2018 Garfield Street and Rosemary Street, the proposed scheme will include 1,500,000 sq ft of residential and office space as well as a retail and hospitality element– significantly the first phase of Tribeca Headline Rents, 2013-2019 will be two Grade A office buildings extending to 23.00 180,000 sq ft. 22.00 21.00 20.00 As a continued word of caution, we foresee 19.00 18.00 supply constraints of larger buildings, especially 17.00 in floor plates in excess of 20,000 sq ft. This Rent £/PSF 16.00 15.00 emphasizes a strong reliance on schemes such 14.00 as the ‘Sixth’ (former Belfast Telegraph building) 13.00 12.00 City Quays 3, Bedford Square, Waterside, 11.00 Bankmore Square being delivered to facilitate any companies who seek to expand within 2013 2014 2015 2016 2017 2018 2019 2020 Northern Ireland within the next 12 to 24 months. Headline Rents Notable Office Transactions, Q4 2018 Landlord Tenant Size (sq ft) Location Oakland PWC 155,012 3rd - 9th Floor, Merchant Square, Wellington Place Straben BESpoke 19,774 Ground & 1st Floors, Adelaide Exchange, Adelaide Street Castleforge TLT 11,630 12th & 13th Floor, River House, High Street Killultagh Allen & Overy 9,500 5th Floor, The Linenhall, 32-38 Linenhall Street Angus Properties Teamwork 8,870 1st, 2nd and 3rd Floors Laganview House Causeway Asset Management StepSpace 5,591 1st Floor, Centre House, Chichester Street Private Landlord CYTI 3,415 4th Floor, Moneda House, Wellington Place Private Landlord Firemelon 3,326 5th Floor, Moneda House, Wellington Place Private Landlord Fintru 3,100 3rd Floor, 74/76 Dublin Road Page 4 The Lisney Northern Ireland Commercial Property Report Q4 2018 & 2019 Outlook Retail Despite very difficult headwinds in the sector as a whole, Belfast and Northern Ireland’s high streets and shopping centres have remained relatively resilient throughout 2018. Continued occupier demand has seen vacancy rates for the province Overview as a whole (prime, secondary and out of town) improving from 16.6% in 2017 to 15.1% in 2018. Prime occupancy rates improved from 13% to 12.8% despite Belfast’s prime core falling back slightly to 10.2% from 9.1% in 2017. After months of disruption following the Primark fire, Belfast saw bumper footfall in December with reports of Five Guys had new openings in Q4 2018 in excess of 20% increase on 2017. Despite a number of high profile CVAs our out More than 3 months on from the Primark fire of town locations are experiencing continued that shut down a large part of our prime high demand from retailers including M&S, B&M, street, early December saw the new temporary Iceland, TK Maxx, Dunelm, EZ Living, Pets at walkway in place, reopening the key access Home and Poundstretcher, so we expect to see routes between Donegall Place, Royal Avenue stores vacated by Toys R Us, Maplin, Carpetright, and Castle Place. This brought about the Mothercare etc relet throughout 2019. Noteable reopening of McDonald’s, Spar, Argento, and Activity openings in Q4 saw M&S Simply Food and O’Neills Skechers. Also, in the following week we saw the open at the redeveloped Marlborough Retail welcome return of Primark in Commonwealth Park, Craigavon and Pets at Home’s new store at House, the original extension to Bank Buildings. Bloomfield Retail Park in Bangor. In Belfast, Irish department store Guineys The food and beverage sector continued to be opened on Castle Place, Matalan opened its first buoyant, with openings including Five Guys at town centre store in NI at CastleCourt and Mike Boucher Square and alongside Nandos at Rushmere Ashley’s Brand Max made its NI debut with their Shopping Centre in Craigavon. Tim Horton and opening in Connswater . These lettings combined Subway opened new drive thru units at Connswater brought approximately 60,000 sq ft of vacant and Boucher Road and Starbucks opened on space back to life! Wellington Place in Belfast. After months of disruption following the Primark fire, Belfast saw bumper footfall in December. Page 5 The Lisney Northern Ireland Commercial Property Report Q4 2018 & 2019 Outlook Retail 2019 will undoubtedly see further turmoil in the sector with the perfect storm of online competition, political and economic uncertainty, reducing discretionary spending and squeezed margins leading to more business failure and CVAs.