Savills Northern Ireland Property Market Outlook 2023

According to the Savills Northern Ireland Outlook report, there is a shortage of the right product in the right location, with limited fresh supply and an increasing demand for compliant offices.

As a result, there will be a tightening of incentives offered to new occupiers, as well as growth in headline rents, potentially exceeding £25.00 psf in 2023.

The report also shows that employers are seeking centrally located offices with high-quality fit-outs to entice employees back to the office.

The average deal size rose for the first time since the pandemic, and the largest deal of the year was the leasing of 40,084 sq ft of a new serviced office centre in Custom House to Bespoke Estate Agents in Q2.

Looking at take-up by sector shows that professional services overtook tech in 2022, accounting for 25% of total space taken compared to 21%, respectively. Notwithstanding this, the sector remains attracted to Belfast city centre and Savills expects this to continue in the future.

The report forecasts that the office sector is expected to grow by 650,000 sq ft in 2023, following the delivery of Grade A space including The Ewart, Olympic House in Titanic Quarter, Belfast Harbour’s City Quays 3 and The Paper Exchange.

However, there are no further new build developments scheduled for 2023, and occupiers will soon face a shortage of available prime space.

Northern Ireland is a value play for commercial property investors

Investors seeking better yields on their real estate investments have identified Northern Ireland as a value play.

According to Savills, this is partly due to Northern Ireland's unique position as a gateway between the EU and the UK, which has supported investor interest. As a result, the region witnessed the highest level of investment activity in the past five years, reaching £350 million in 2022. In addition, Northern Ireland's real estate yielded better returns than the GB or ROI markets.

The first quarter of 2022 started strong with transactional volumes of almost £100 million. However, economic concerns began to grow in the second quarter, leading to a decrease in transactional volumes to £46 million. There was an adverse shift in prime real estate yields and a further weakening in market activity in Q3. Despite this, Q4 saw investment activity increase considerably, reaching a total transactional volume of £153 million. The retail sector has consistently accounted for the largest proportion of annual market share, making up 43% of total transaction volumes in 2022, while investment in the industrial sector declined.

Despite the delta between buyer expectations and vendor aspirations, new sales opportunities and a growing pool of buyers are expected to deploy capital in 2023. Savills expects the growth of investment in the retail sector to continue.

Ben Turtle, Director and Head of Savills Northern Ireland commented

“Overall, Northern Ireland is an excellent location for investors seeking better yields on their real estate investments. The region's unique position as a gateway between the EU and the UK, combined with its solid fundamentals, makes it an attractive investment destination for those seeking value plays.”

Retail market remains resilient despite political and economic turmoil

Despite general political and economic turmoil, the Northern Ireland retail market has so far remained remarkably resilient, according to Savills.

One particular highlight for the retail market in Belfast was the long-awaited reopening of the flagship Primark Store in November 2022. The new store, which comes four years after a blaze destroyed the original premises, is 76% bigger than the previous store and includes a new Disney experience, a home department, and a nail and beauty salon.

The out-of-town retail and leisure market also held up well over the past 12 months, with the vacancy rate remaining low as many parks are fully let. New lettings within this sector included Pure Gym’s acquisition of 10,000 sq ft at Braidwater Retail Park in Ballymena, while Poundland continued to expand aggressively through the leasing of new space.

There is one major new retail park which is set for development in Enniskillen after planning consent was granted in March. The scheme, known as Lakelands Retail & Leisure Park, will be developed on the former Unipork site at Cornagrade Road. It will comprise five large retail warehouses, anchored by The Range, as well as a leisure element including a hotel, cinema, and bowling alley.

Following an extremely challenging few years with the collapse of many established retail brands, the shopping centre market showed something of a resurgence last year. Both of the main shopping centres in Belfast city centre attracted a number of new occupiers. In Castlecourt, part of the former Debenhams has been let to Avenue cinema, adding a new leisure element to the scheme.

The Food & Beverage market also experienced increased activity in 2022. The likes of Greggs and Starbucks are all opening new outlets, and Slims Chicken opened its first Northern Irish store at Boucher Crescent in Belfast.

Build-to-Rent developments can ease rental accommodation demands in Belfast

Town and cities across the UK are experiencing pressure from the continued withdrawal of Buy-to-Let (BTL) Landlords. Figures from Savills UK suggest there were -76,000 net BTL mortgage redemptions in the year to August 2022. Taken alongside the recent surge in rental demand, the undersupply of rental accommodation has continued to push typical rents up. However, Belfast City Council’s approval of full planning permission for four build-to-rent (BTR) schemes is timely and has the potential to ease the demands of rental accommodation in the future.

Savills research shows that rising student numbers, which will translate into higher graduate numbers, will have the biggest impact on rental markets in the future.

Belfast tops the table ahead of cities like Glasgow and Manchester for the retention of graduates relative to the number of rental properties available to rent. This means these cities have an increasingly well-educated, young workforce that is seeking proximity to employment and greater choice in the rental market. With a strong student component to Belfast’s population, BTR will also support graduate retention.

With seven BTR schemes currently at various stages of the planning process, the growing demand for rental accommodation has the potential to be eased in the years ahead. These schemes represent the first BTR developments in Belfast, which offers robust fundamentals for this development type due to steady employment growth and strong graduate retention. These schemes would add 2,300 units to the market, with two of the seven proposed developments accounting for 55% of these.

Savills expects at least one of the larger BTR developments to break ground within the next six months, demonstrating that Belfast has all the correct fundamentals to support a commercially viable BTR scheme. Moreover, the scale of the Loft Lines and Waterside proposed schemes provide excellent placemaking opportunities and would boost the regeneration prospects that play a crucial role in improving the city’s wider appeal.

Ben Turtle, Director and Head of Savills Northern Ireland commented:

“Overall, the BTR schemes in Belfast have the potential to provide a much-needed solution to the city's undersupply of rental accommodation and could greatly benefit the city's economy and population in the years to come.”