Flat, boring and stuck in limbo. These are the words and phrases summing up Belfast’s office market. They are not encouraging, and what makes them worse is that they are uttered by local agents who are normally loath to talk any market down. But there is no escaping the lack of rental increase — they have languished between £12 per sq ft and £14 per sq ft for the past five years — or last year’s drop in take-up, down by more than 45% on 2004.
The government is blamed for the situ-ation. It is the major player in the three primary concerns affecting the office market: Workplace 2010 (see box); the lack of inward investment; and high corporation tax.
Tentative breakthrough
There is also the problem of Northern Ireland not having its own government. Almost four years ago, the assembly was suspended because Ian Paisley’s DUP, and Gerry Adams’ Sinn Fein, could not work together. Direct rule from Westminster was imposed. Last month’s resumption of the assembly is seen as a tentative breakthrough for Northern Ireland politicians to take matters back into their own hands.
For development and progression of the province as a whole it is good news, but it is unlikely to affect Workplace 2010 — the government’s £1.5bn outsourcing contract for more than 2.7m sq ft of property. The initiative is blamed for stalling Northern Ireland’s office market growth.
The government accounts for almost 60% of the province’s office take-up, and because it is in the process of choosing a company to handle its outsourcing, it is not taking any further space. The effect has been immediate. Compared with 2004’s take-up of 600,000 sq ft, last year’s dropped to 350,000 sq ft.
Conor Devine at BTW Shiells says the fall was “significant”. He adds: “There is no doubt that, because of the Workplace 2010 initiative, we are in an era of uncertainty in relation to the office market. The likely effect will be a tightening of the office market across the board and, as the government rationalises its existing stock, we will enter a period of consolidation.”
Ciaran McAreavey, area manager for Northern Ireland with the Anglo Irish Bank, is another who believes that Workplace 2010 is an issue. “Developers who have planning permission will have to pause for breath,” he says, adding that the government will, in future, opt for refurbishments rather than take new space.
CB Richard Ellis’s Belfast office estimates that around 2m sq ft of office space is either planned or in the early to late stages of development. This includes the 225,000 sq ftsecond phase of Bedford Square, being developed by McAleer & Rushe and Dunloe Ewart Properties. But if the government is not going to take-up the space, who will?
Agents hope demand will come from the private sector, along with more inward investment. Only this, says Brian Lavery, executive director with CB Richard Ellis in Belfast, will take market domination away from the government.
Companies have taken space. Last year, Citi Group took 40,000 sq ft in the Northern Ireland Science Park in the Titanic Quarter. But there needs to be more of these big investments.
One developer banking on the private sector is William Ewart Properties. It is planning to start on site later this year with two speculative office buildings totalling 110,000 sq ft at Lanyon Place, where it has already developed the first phase of 400,000 sq ft.
Although this first phase let slowly, development director Acheson Elliott says it has no worries about getting occupiers for the next phase because the new buildings can be sub-divided into areas of 2,000-3,000 sq ft — the sector that is keeping the office market afloat.
But attracting major deals is difficult, especially given the difference in corporation tax between Northern Ireland and the Republic of Ireland.
“We are braced for take-up in the office sector, but we would like to see a cut in corporation tax,” says Lavery. “We are at a disadvantage as we are the only part of the UK that shares a border with a country with vastly different corporation tax.” Elliott agrees, adding that Northern Ireland is on “an unlevel playing field”. Corporation tax is 17.5 percentage points higher.
The tax issue was raised in the House of Lords in March, but the government refused to change the regime (see box, p149). Still, agents in Northern Ireland have pledged to continue to fight for a lower tax. Osborne King’s Gavin Clark says that unless the government acts “the situation will not improve”. The government’s dominance over the market is also seen as keeping rents artificially low. Over the past 11 years, Belfast city-centre rents have increased by only £4 per sq ft — from an average of £9 per sq ft in 1995 to today’s average of £13 per sq ft.
But hopes rest on Workspace 2010 to push the market forward, says Clark. “If the outsourcing companies come in to take on new leases and fill the government’s role, then rental levels have to rise,” he says. “And if the government does consider taking on new buildings, this would push rents up because you can’t build new buildings at the rental levels they fetch at the moment.”
Political stability
For Rory McConnell, partner with Belfast-based McConnell Martin, the ultimate solution lies with political stability.
“We need inward investment, and there won’t be any until we have political stability,” he says. “At the moment, it’s one step forward, two steps back. The province has no direction at the moment, but we need help in getting it.” Only then will the people of Northern Ireland be able to take firm control of their own development.
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It costs £80.4m a year to run the entire Northern Ireland government estate, and outsourcing it would save the government up to £145m over 25 years. A shortlist of four has been drawn up; Mapeley, Land Securities Trillium, Telereal and McAleer & Rushe, and the final decision will be made in December. It is hoped the chosen company will start work on the buildings next year. Included in the portfolio are 56 freeholds valued at £200m, which will be sold, and lease liabilities on 24 properties that will be transferred. Phase two could see a further 122 buildings transferred. The contract includes facilities management across the entire estate, which comprises: 28 core offices in Belfast and the regions; 35 jobs and benefits offices; and 17 Belfast offices that the civil service wants to vacate. |
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Lord Alf Dubs, a former minister for the Environment, raised the issue of corporation tax in the House of Lords in March, saying: “The task of attracting inward investment to Northern Ireland is enormous, when one considers that the rate of corporation tax in the Republic of Ireland is 12.5%, against 30% in Northern Ireland.” He added that it meant the Republic was a magnet for inward investment that might otherwise go to Northern Ireland. “Is it nottime that the government thought againabout this?” he asked. But Northern Ireland minister of state Lord Rooker dismissed the question, saying that the effective rates of corporation tax are nothing like the figures given by Lord Dubs. “Taking account of tax allowances, the figure is about 21.7% for the UK and 13.7% for the Republic. I accept that there is a gap. However, tax is a matter for the Treasury. It has been decided, and there is no possibility of it being changed. It is a UK-wide regime.” “I understand the difficulty of having different rates of corporation tax in different parts of the UK, but this might be a case for exceptional treatment.” |
