Q2Quarter 2, 2017

THELISNEYBELFASTCOMMERCIALPROPERTYREPORT

The Difference

The Market in Numbers

200+ million of transactions currently either under offer or in legals

Investment

£200m

Take up throughout Belfast City Centre in Quarter 2, 2017

Office

43ksq ft

Prime rents stabilising in BelfastCity Centre

Retail

Notable transactions during Quarter 2, 2017

Industrial

140ksq ft

£135-£150psf za

Investment transactions in the second quarter in NI very much mirrored the first quarter with transaction volumes of less than £20m, this was unsurprising in the context of the UK election which traditionally has a pausing effect on the investment market, this effect was somewhat amplified in the context of the wider macro political climate.

Where we can point to an air of optimism is in the £200+ million of transactions currently either under offer or in legals.

The most notable of which is Castlecourt, currently agreed to NI based asset manager Wirefox in a deal worth c. £125m, this added to Phases 1 & 2 of the Riverside Retail park in Coleraine and Tesco Extra in Newry all point to a much more favourable third quarter for the NI investment market.

Investment

Overview

Activity

Property Details Pricing

Fountain House, Donegall Place,

Royal Avenue 40,000 sq.ft. Prime High Street Retail £14.25m/6.5%

Tesco, Downshire Road, Newry 94,000 sq.ft. Foodstore £27.7m/6%

Bombardier, Doagh Road, Monkstown

430,000 sq.ft Industrial facility £19.5m/7.1%

Vodafone – Upper N’ards Road 13,500 sq.ft. self-contained office £2m/8.4%

Laharna Retail Park Retail Park extending to 48,000 sq.ft. £5.78m/8%

On The Market, Q2 2017

Page 2

The uncertainty of Brexit still looms, with the issue being arguably more acute in Northern Ireland but as transaction volumes begin to grow coupled with public sector stimulus in the form of the NI investment Fund, the Belfast City Council Investment Fund and the additional public spending power as a result of the recent confidence and supply agreement between the Tories and the DUP, confidence is tentatively growing.

Confidence is particularly prevalent at the lower end of the market, where local pension buyers have been particularly active in a sector which has struggled to deliver enough product to service demand.

20m

40m

60m

80m

100m

120m

140m

Investment Volumes, Q2 2016 - Q2 2017

Q12017

Q42016

Q32016

Q22016

Q22017

Mill

ion

£ (S

terl

ing)

13.5m

45m 40m

8m

18m

Castlecourt Shopping Centre on Royal Avenue

The Lisney Northern Ireland Commercial Property Report Q2 2017

Property Details Pricing Status

Castlecourt Shopping Centre

340,000 sq.ft. Covered Shopping Centre

£125m Agreed

Riverside Retail Park Coleraine

225k sq.ft Bulky Retail Scheme

£45m/7.25% Agreed

Vodafone – Upper N’ards Road

13,500 sq.ft. self-contained office

£2m/8.4% Under offer

Quayside Shopping Centre, Londonderry

Car park and covered mall £3.8m/11.4% Sold - Private Investor

Iceland, Shankill Road, Belfast

Roadside Retail extending to 7,890 sq.ft.

£1.06m/7.56% Sold – Private Investor

Great Northern Retail Park, Omagh

Buly Retail Park extending to 73,000 sq.ft

£9.175m/8.1% Sold – Private Investor

Notable Transactions, Q2 2017

Investment

Page 3

Office

Take-up levels in Quarter 2 were more encouraging than at the beginning of the year reaching 43,000 sq ft however still reflect a significantly restrained supply pool. In particular the unavailability of suitably sized floor plates for the larger corporate occupiers has been a challenge

In what is a positive move from the supply side demolition works have started and are progressing with the clearance of 34-36 Chichester Street which is being developed by Orby Developments.

Planning permission has recently been granted on the site and the adjacent car park for a scheme

Overview

Activity

which will deliver 100,000 sq ft of Grade A office space with a retail element on the ground floor.

Despite the effects of Brexit and a slow start to the year there are positive signs for the office market for Q3 and beyond which can be attributed to growing unsatisfied demand, continued inward investment, new market entrants (largely operat-ing within the ‘Creative Industries’) and several office schemes which have been earmarked for planning approval early in Q3 Given the level of unsatisfied demand, estimated at somewhere between 400,000 – 500,000 sq. ft. there is now a greater emphasis to ensure that not only refurbishment projects are swiftly delivered but that speculative new build office schemes continue to make their way through the planning system.

Groundworks have commenced on Chichester Street

The Lisney Northern Ireland Commercial Property Report Q2 2017

2012

Headline Rents

11.0012.0013.0014.0015.0016.0017.0018.0019.0020.0021.0022.0023.00

Rent

£/P

SF

2013

2014

2015

2016

2017

2018

Headline Rents, Q2 2017

Office

Page 4

Landlord Size (Sq Ft) Location

Danske 13,3773rd floor, Danske Building,

Donegall Square West

Redbay Developments 9,2124th & 5th Floor, Linen Loft, 27

Adelaide Street

MW Holdings 6,500Ground, 1st & 2nd Floors, Glengall

Exchange, Glengall Street

McLean & Others 6,4541st Floor, Ascot House, 21-24

Shaftesbury Square

Office Take Up, Q2 2017

Retail

Whilst Q1 saw a real Belfast bias in terms of new lettings, Q2 has seen more activity in the regions with Enniskillen, Coleraine, Bangor, Ballymena, Newry and Derry all getting in on the act. Existing retailers such as The Range, B&M, Skechers, Holland and Barrett and Card Factory took new stores and new entrant Smiggle opened their first Northern Irish store in Foyleside, Derry.

Brexit uncertainty and its effect on consumer confidence is a real worry for retailers, however with the Euro likely to continue to strengthen against the pound, some analysts predicting parity in 2018, we can see some reason for optimism going forward. The border towns will continue to strengthen and we can see the car parks of Belfast’s shopping centres filling up with southern plates as the savings of shopping in the north become compelling. With Belfast vacancy rates at a record low there

are very few available options for acquisitive retailers. We expect an announcement on who will fill the high profile void left by BHS in Castle Lane in the second half of the year and with Wirefox’s pending acquisition of Castlecourt we anticipate further investment and re-energized letting strategy leading to a number of high profile lettings. This we would hope will underpin and help grow a prime rental tone of £135-£150 per square foot zone A.

Overview

Boojum’s new premises at Victoria SquareActivity

The Lisney Northern Ireland Commercial Property Report Q2 2017

Freshii’s flagship Belfast premises at Donegall Square

Retail

Away from the town centres we are seeing continued demand for Out of Town locations with the likes of B&M, The Range, EZ Living and Oak Furniture Land evaluating options to expand their NI estates. The Range have opened their second NI store at Faustina Retail Park in Derry and are in negotiations on other locations and B&M have opened their new store at Westwood Centre in West Belfast and are under offer on a number of other high profile parks. We are cautiously optimistic that the retail occupational market will continue to function well throughout the rest of 2017 and into 2018, not only in Belfast but in strong regional shopping centre and retail parks.

Page 5

Trader Type Transaction Centre Location

Holland & BarrettHigh Street/

Shopping CentreLetting Erneside Shopping Centre Enniskillen

Remus UomoHigh Street/

Shopping CentreLetting Victoria Square Belfast

B&M OOT Extension Riverside Retail Park Coleraine

Freshii F&B Letting Donegall Square Belfast

Greggs F&B Letting Main Street Bangor

Warren JamesHigh Street/

Shopping CentreLetting Tower Centre Ballymena

SkechersHigh Street/

Shopping CentreLetting The Quays Newry

Boojum F&B Letting Victoria Square Belfast

Hotel Chocolat F&B Letting Donegall Square Belfast

Nandos F&B Letting Abbey Centre Newtownabbey

Smiggle High Street/

Shopping CentreLetting Foyleside Londonderry

Card Factory High Street/

Shopping CentreLetting The Oaks Dungannon

GreggsHigh Street/

Shopping CentreLetting Buttercrane Newry

The Range OOT Letting Faustina Retail Park Londonderry

B&M OOT Letting Westwood Shopping Centre Belfast

Notable Transactions, Q2 2017

BHS on Castle Lane/Castle Place

The Lisney Northern Ireland Commercial Property Report Q2 2017

Industrial

While Brexit is still in the minds of many local companies who are considering a move South of the border it is very promising to see Canadian-owned McCloskey International completing construction of their new 120,000 sq ft manufacturing facility at Granville Industrial Estate in Dungannon.

Speculative construction is still not a viable option for developers, accordingly it has been necessary for a number of owner occupiers, as we have discussed in previous market updates, to construct their own premises as they can deal with specialist requirements such as high eaves.

A major property that has come to the market for sale is the Caterpillar factory in Newtownabbey comprising c. 200,000 sq ft on a total site of 21.48 acres and will be extremely attractive to owner occupiers.

As mentioned last quarter a 109,460 sq ft facility on Lissue Walk in Lisburn was on the market but it is interesting to note that demand was for smaller units, and while a self-contained unit was previously let, a further unit of 65,000 sq ft has now been subdivided and let to a number of occupiers.

This again shows that while the supply of units around 100,000sq ft is limited the tenant demand just isn’t there for this size at present.

There are continually lettings taking place in Titanic Quarter. Two have recently completed in Channel Commercial Park in and we have also recently brought on a fantastic unit comprising c. 45,000 sq ft in the area which is receiving good interest.

Quarter 2 was positive from both a sales and lettings perspective with a number of transactions

completing and demand remaining consistent.

Overview

Channel Commercial Park, Titanic Quarter

Activity

The Lisney Northern Ireland Commercial Property Report Q2 2017Page 6

Location Size (Sq Ft) Type

Channel Commercial Park, Belfast 4,930 Lease

Ballinderry Road, Lisburn 5,871 Sale

Channel Commercial Park, Belfast 7,500 Lease

766 Upper Newtownards Road, Dundonald 14,552 Lease

Diviny Drive, Portadown 35,918 Sale

Portadown Road, Lurgan 71,700 Sale

Total 140,471

Notable Industrial Transactions, Q2 2017

Diviney Drive, Portadown

BELFASTMontgomery House, 29-33 Montgomery Street, Belfast, BT1 4NXT: +44-2890-501501E: belfast@lisney.com

DUBLIN St. Stephen’s Green House,Earlsfort Terrace, Dublin 2D02 PH42T: +353 1 638 2700E: dublin@lisney.com

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LONDON33 Cavendish Square, Marylebone, LondonUnited Kingdom, W1G 0PWT: +44-203-714-9055E: london@lisney.com

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Lisney Northern Ireland

The Lisney Northern Ireland Commercial Property Report Q2 2017

Investment

• The UK investment market continues to defy expectations, posting H1 2017 investment volumes 24.4% above the long-term average.

• Inflation fell unexpectedly in June for the first time in nine months to 2.6% from a four-year high of 2.9%. The fall in inflation cast’s doubt over an interest rate hike later this year

• All the signs show that Northern Ireland full year investment volumes will be greater than last year, 2016, that finished with c. £215m transacted. We estimate the final figure to be c. £300m.

• Continued demand for investment stock in the £1m -£3m bracket.

Office

• Take up will be less than last years total of 535,000 sq ft dominated by lack of supply and uncertainty cooling demand.

• Headline rental levels will stabilise at £20/£22psf.

• City centre supply will increase H1 2018 as refurbished offices come on stream.

Retail

• Belfast prime vacancy rates to fall further will be Less than 10%.

• Prime rents set to stabilise at £135-150 psf za.

• Continued demand for border towns.

Industrial

• Renewed interest in Industrial occupation and investment given export focus and improved profitability due to fall in value of sterling.

A Final Word Of Caution

• There are early signs that consumer spending is slowing. It is likely that this will continue for the rest of the year dampening demand.

Outlook

The Lisney Research Team

Chris CampbellMarketing Manager

Jonathan HaugheySurveyor

The Lisney Northern Ireland Commercial Property Team

David McNellisDirector (Agency)

Nicky FinniestonDirector (Retail & Investment)

Declan FlynnManaging Director

Andrew GawleyAssociate Director (Agency)

Stephen ChambersAssociate Director (Investment)

Gareth JohnstonDirector (ProfessionalServices)