It has been an exceptional year for Northern Ireland’s investment market, with growing signs of recovery for the economy in 2014 attracting increased investment.
While the banks are still nervous about lending for development, investors are not so twitchy.
According to CBRE, deals valued at more than £500m in total were done across the province in 2014. The vast majority were retail transactions: shopping centres and retail park deals totalled £385.7m, marking a 150% increase on 2013.
One particularly significant deal went through last July, when Kildare Partners bought the Foyleside Shopping Centre in Derry for £85.5m with an initial yield of 7% (see below).
Even better news for the market is that this level of activity is expected to continue, with £300m of deals already in the pipeline for the first quarter of 2015 – primarily as a result of the banks deleveraging. However, no deals have yet been announced.
Declan Flynn, managing director of Lisney, says investors’ interest in retail is following the pattern set in the rest of the UK. Added to this is the lack of office stock on the market, which has pushed traditional office investors towards the retail sector.
“[Investors] are all opportunely looking here as they see potential for underlying growth,” says Flynn. “There is such demand for investment in the rest of the UK and that’s why they are here. The province has gained interest. All the portfolios that have been sold [have come onto the market] because the stock has become available and that is a function of the banks deleveraging.”
But Flynn is pragmatic about the leap in investment deals from just £75m in 2011, when the market was still very much in a state of flux and Nama sales had just been announced the previous year. “It is not that the market is doing well, it is just that it has been caused by the banks wanting to right-size and get assets off their balance sheets,” he says.
“When you have £75m of investments in Northern Ireland in 2011, that’s not a normal market and I think where we are now is a normal level – and it can be maintained, certainly in the short-term.”
Flynn believes people who owned product were “under water in terms of their debt and value. That is why there was no activity in 2011.”
It is not just banks deleveraging that is bringing assets forward. Those who have bought have now started to sell and that is why 2014 investment levels should be maintained.
Outside normal activity, there was one significant deal that pushed up the volume of assets: Nama’s Project Eagle, which sold for £4.5bn last year (see below).
As CBRE Belfast managing director Brian Lavery stated in the firm’s end-of-year report in 2014: “The sale of Nama’s entire holding in Northern Ireland, by way of a loan sale earlier this year, helped stimulate the increase in the volume of asset sales throughout 2014.”
Good news for the province is that a lot of these investors are new to the market. These include Vixcroft (formerly Arrowcroft), F&C REIT, New York-based Marathon and New River.
There has also been significant US money coming in, says Alastair Todd, commercial property partner at law firm Arthur Cox. “They see an opportunity, and they are very portable,” he adds. “They will go anywhere.”
All in all, Northern Ireland is looking forward to a bumper 2015: the province has gone from a debt-based model in 2008 to an equity-based model with a significant amount of institutional
activity.
How long this can be maintained is uncertain, but the province is finally basking in the investment glow that has been enjoyed by the rest of the UK for the past couple of years.
The multi-billion-pound deal
When Cerberus Capital Management bought Nama’s Project Eagle portfolio for a reported £4.5bn last year it was one of Northern Ireland’s biggest sell-offs. Nama wouldn’t disclose the terms of the deal, but the portfolio comprised loans owned by Northern Ireland-based debtors and secured by assets in Northern Ireland, the Republic of Ireland, Great Britain and other European locations.
Speculation over what is going to happen to the portfolio (which Cerberus beat PIMCO to buy) is mounting. One source says: “Cerberus is… [going to] its borrowers to refinance its deals, so effectively it is going to get someone else to buy its money out. That is happening at pace. It is getting through its book really quickly.”
Yields In Northern Ireland
Direct investment transactions worth in excess of £500m were completed across the province in 2014, says CBRE Northern Ireland. This was the strongest annual performance since 2007, and greater than the volume of transactions over the preceding four years combined.
Prime yields across all sectors have hardened since early 2013 and this trend is likely to continue in 2015 as the region plays catch-up with the rest of the UK.
Belfast’s prime office sector has seen yield compression owing to robust occupational demand, coupled with strong forecast rental growth; but conversely, CBRE says, virtually no new space is becoming available in the immediate future.
Average prime yields in Northern Ireland normally track 25-50bp behind the equivalent properties in other UK regions.
Investments currently trade at a discount to comparable stock in other UK regions. As such, the province is seen as good value for money.
