Despite a deluge that caused flooding across the city, Estates Gazette’s first Question Time event in Belfast found a market that was weathering economic and political storms.
Developers, advisers and council representatives gathered in the city’s Merchant Hotel, in the Cathedral Quarter, on 13 November to hear how the property market could build on recent successes amid a growing Northern Ireland economy.
The Cathedral Quarter was an appropriate location: it is an area that has gone from being down-at-heel to desirable in a decade, and has helped to change the perception of the city as a whole in the process.
As ever, strong themes around politics and money ran through the debate. But unlike EG’s Dublin Question Time earlier this year, the focus in Belfast was on development finance rather than investment.
Many present wanted to see banks increase lending, but panellist Craig Logan, property finance group director in Bank of Ireland corporate banking, said there was a lack of “fundable opportunities” landing on his desk. “One of the fundamental problems with the property sector in Northern Ireland is its lack of equity. Until we get to the bottom of that, we are going to have a reasonably static sector,” he said.
Rents, currently around £14 to £15 per sq ft, would have to rise to £17 to £18 per sq ft to spur the volume of development that the Belfast market required, the panel agreed.
Could this come from the public sector? “There’s potential for us to use some form of financial transactions capital for lending to or taking equity in private developments, but that would be absolutely on a commercial basis,” said William McCulla, director of corporate finance and property solutions at Invest Northern Ireland. “Even at £17 or £18 per sq ft the rentals would still be very competitive with other parts of the UK.”
Not everyone agreed with the suggestion that political paralysis had taken hold in Northern Ireland; several significant policy changes were on the horizon, panellists said.
All the main political parties believe that the rate of corporation tax needs to be cut to help Belfast compete with Dublin, where low tax rates have helped to attract international businesses.
And as part of a package of devolution measures, chancellor George Osborne is expected to give Stormont greater control over the country’s finances next month. Nevertheless, the panel wasn’t certain that the politicians would follow through with significant tax cuts.
However, planning is an area sure to undergo significant change, with decision-making powers set to be devolved to local authorities from central government. “There are a lot of grade-A planning permissions that are clogged up in the planning department at the moment,” said Joanna Robinson, legal director at Pinsent Masons. “Hopefully with the devolution of powers to the local authorities, we’ll see more efficiency in getting those planning permissions through and development picking up.”
Belfast city council director of development John McGrillen said the council was currently advertising for a director of planning with experience of running an “investment-friendly planning system”. Meanwhile, councillors were touring other local authorities with planning powers – such as Cardiff, Bristol and Manchester – as they prepare for their new role.
“From the council’s perspective, development is a good thing,” he said from the audience. “We do have the ability to borrow money and to invest money and we’re asking councillors to think about where we could be an equity investor, where we could be a risk sharer to drive some of this stuff forward.”
If the development market needs a spur, the investment market is already doing well (see box, below).
“In the retail sector we see rental growth of anywhere between 3% and 5% per annum at the moment,” said Ben Turtle, head of Savills Northern Ireland. “For prime grade-A shopping centres, yields have come down to levels that are similar to those of assets in Great Britain. Investors are buying into the rental growth story. But secondary retail looks mispriced, trading anywhere between 200 and 300 basis points away from similar assets in Great Britain.
“And there’s a limited amount of grade-A office supply. We’re seeing demand from institutions and private investors right across the board.”
John Campbell, economics and business editor for BBC Northern Ireland, said he saw opportunities in alternative assets – especially student accommodation and old-age care facilities.
Gary McCausland, founder and chief executive of Richland Group, said there were opportunities in residential too. “The private rented sector is going to be strong,” he said. “There’s going to be higher rental growth. You’ll see a lot happening in the one-bed and two-bed rental market.”
But despite his residential background, McCausland also revealed that he had office ambitions. Why? “In Belfast you’re going to see grade-A office demand go through the roof,” he said. And the rest of the panel agreed.
Northern Ireland posts jump in GNP and investment
Northern Ireland’s economy is growing at its fastest rate since 2006, with GNP in Q2 up by 9% on the previous year’s level. Job creation has been the catalyst for growth with 76,600 jobs created in net terms since Q1 2012.
There has been a significant increase in investment activity in the Northern Ireland market in 2014, according to Savills. Driven by the emergence of private equity, £438m worth of deals have been completed so far this year. This represents a 150% increase on total investment for the whole of 2013. Retail investment has driven performance, accounting for 88% (£385.7m) of completed deals.
What’s on the panel’s Christmas list?
Dr Esmond Birnie, chief economist, PwC Northern Ireland
More certainty within Northern Ireland’s spatial planning system
Joanna Robinson, legal director, Pinsent Masons
A rebasing of non-performing loans, which will drive more properties on to the market
John Campbell, Northern Ireland economics editor, BBC
A little bit more risk appetite from the banks
Craig Logan, property finance director, Bank of Ireland Corporate Banking
More dialogue between banks and their customers
Ben Turtle, head of Savills Northern Ireland
A return to a scenario where the banks are doing what the banks should be doing
William McCulla, director, Invest Northern Ireland
Banks to look a little bit more at speculative development, because its risks have been much reduced
Gary McCausland, chief executive, the Richland Group
Corporation tax down to 18%; more transparency; interest rates to stay at 0.5% for all of next year; more mortgage competition; and an improved political climate
To watch highlights of the discussion, click here.
