Q3Quarter 3, 2017

THELISNEYBELFASTCOMMERCIALPROPERTYREPORT

The Difference

The Market in Numbers

£199 million of transactions during Q3

Investment

£199m

Take up throughout Belfast City Centre in Quarter 3, 2017

Office

91.5ksq ft

Prime rents stabilising in BelfastCity Centre

Retail

Notable transactions during Quarter 3, 2017

Industrial

263ksq ft

£150psf za

Q3 has seen a significant jump in volumes to £199m following the quiet opening months of the year with less than £30m transacted in the run up to the summer. The most significant transaction being Wirefox’s acquisition of Castlecourt in a deal worth c. £123m. In a subdued retail investment market right across the UK it’s positive to see off shore equity buying into Northern Irish retail, and when combined with Tesco, Newry and Valley Retail Park, Newtownabbey selling for a combined £39m we’re seeing a much busier start to H2 2017. Office investments and a portfolio of care homes make up a significant proportion of the remainder.

Investment

Overview

Activity

Property Details Pricing

Longwood Retail Park,

Newtownabbey 190,000 sq.ft retail park £47.78m/7.25%

Laharna Retail Park, Larne 48,000 sq.ft retail park £4.87/9.5% (Remarketed)

M2 Trade Centre, Duncrue 38,000 sq.ft industrial park £1.15/8.82% (Agreed)

Hillview House,

Newtownabbey 55,000 sq.ft office £3.75/13.08% (Agreed)

On The Market, Q3 2017

Page 2

Our prediction of investment volumes hitting £300m looks to be on course with a number of transactions including Riverside Retail Park in Coleraine set to complete before year end, and with Longwood Retail Park in Newtownabbey currently in the market we could potentially surpass that estimate. Either way volumes have surpassed last year’s levels which is a notable positive in our current Brexit vacuum.

Where we must sound a note of caution though is in the depth of the purchaser market. A number of the assets agreed or recently traded had been in the market longer than first intended and with funds and Property Companies still relatively quiet we’re looking to private equity and local asset managers to drive activity for the larger lots. Delivering enough product with return profiles suited to this type of purchaser remains

a challenge, however our main sectors remain robust with demonstrable, sustainable growth which positions NI well to attract investors when the uncertainty associated with Brexit begins to clear as exit negotiations advance.

One notable sector where we can point to very strong performance is sub £2m. Anecdotally many of the purchasers are utilising the tax benefits of SIPPs and SSASs, and are keen to deploy capital given uncertainty in the equity markets. Hence where properties are relatively low risk and well let we have seen pricing surpass equivalent investments in GB due to lack of stock locally. In our current low interest rate environment property remains a compelling proposition hence we expect this trend to continue in the short to medium term.

Investment Volumes, Q3 2016 - Q3 2017

Q12017

Q42016

Q32016

Q22017

Mill

ion

£ (S

terl

ing)

Q32017

180m

20m

40m

60m

80m

100m

120m

140m

160m

200m

45m 40m

8m 18m

199m

The Lisney Northern Ireland Commercial Property Report Q3 2017

Property Details Pricing Status

Castlecourt Shopping Centre, Belfast

340,000 sq.ft. covered shopping centre

£123m/6.27% Sold

Valley Retail Park, Newtownabbey

100,000 sq.ft. retail park £11.1/8.25% Sold

Tesco Extra, Newry 94,000 sq.ft. foodstore £27.7m/6% Sold

Lesley Exchange, Belfast 18,263 sq.ft. office £3m/7.85% Sold

Notable Transactions, Q3 2017

Investment

Page 3

Office

Take-up levels in Quarter 3 reflected a more functional occupier market with c. 91,557 sq. ft. of City centre office space transacting compared to c. 43,000 sq. ft. and c. 18,034 sq. ft. in Q2 and Q1 respectively.

Overview

Activity

The Lisney Northern Ireland Commercial Property Report Q3 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

Deals completed show a healthy spread of take up ranging from transactions of 1,000 sq. ft. to 25,000 sq. ft. with a mix of both indigenous occupiers and new market entrants taking space; an encouraging indicator of market resilience given the ongoing political uncertainty. Belfast’s reputation as a hotbed of activity in the tech and digital sectors continues to gain momentum and is further evidenced by Q3 office take up which shows c. 56% of letting activity attributable to occupiers operating in these

sectors, to include software design, cyber security, fintech and digital services.

This is a trend which we expect to continue through to Q4 2017 due to a number of lettings which have been agreed in Q3 , to occupiers operating in these sectors.

Chichester House will be Belfast’s first office development to carry a WiredScore certification

Page 4 The Lisney Northern Ireland Commercial Property Report Q3 2017

Office

In light of this activity, We are now witnessing developers who are prepared to embrace the change in Belfast’s occupier market by future proofing their buildings ensuring top class digital connectivity. In Q3, Causeway Asset Management launched Chichester House, Chichester Street and in a Belfast market first, the building will have a WiredScore certification. WiredScore is the premier provider of a standardised rating system designed to identify, evaluate and verify commercial buildings with the fastest and most reliable internet connections.

Landlord Tenant Size (sq. ft.) Location

Armagh House Limited First Derivatives 25,0381st – 4thFloors, Weaving Works,

Ormeau Avenue

Belfast Harbour Commissioners ITV 11,5648th Floor, City Quays 2,

Clarendon Dock

Straidorn Properties Metaswitch 5,5004th Floor, Flax House, Adelaide

Street

Redbay Developments Instil Media 4,4453rd Floor, Linen Loft, Adelaide

Street

Private Landlord Anomali 4,1764th Floor, State Building,

Arthur Street

Office Take Up, Q3 2017

Tech/Digital Companies51,023 sq ft

Other Occupiers40,534 sq ft

44%

56%

Total Q3 Office Take Up91,557 sq ft

Q3 Take Up Analysis

In Focus • WiredScoreWired Certification is a commercial real estate rating system that empowers landlords to understand, improve, and promote their buildings’ digital infrastructure.

Internet is among the top three most important factors for tenants who are searching for office space, along with cost and location. Until now there has been very little information available to tenants about the quality of internet connectivity in office spaces.

Wired Certification provides that transparency and access to information to tenants. The certification measures the aspects of

developments and redevelopments that will most significantly impact a tenant’s ability to run their business.

Getting Wired Certified is a 3 step process and once achieved, a building’s Wired Certification level is valid for 2 years or until the building is 2/3rds full. Maintaining a current WiredScore Certificate gives occupiers the confidence that a landlord is keeping pace with developing technologies and has taken the required measures to provide reliable digital connectivity today while future-proof the building for tomorrow.

Page 5

Retail

Q3 saw sustained levels of activity, but was more of a balance between Belfast and the regions. Notably however in a change to the norm, almost all Belfast activity happened outside the City Centre, as the lack available units is continuing to impede new lettings and slowing rental growth.

In another variation to the previous quarters, regional activity was not led by border locations, where new openings slowed, as quality retail pitches begin to reach full occupancy.

Coffee operators continue to be amongst the most active, with competitive tension and a desire to build, or at least maintain market share driving expansion. Caffe Nero has been the most active in Q3 and Canadian Fast Food Operator Tim Horton’s is due to complete their first acquisition early in Q4. With more on the way we expect this market to continue to thrive especially where there is scope for drive-thrus.

In the retail warehousing sector vacancy levels continue to fall, with a considerable pool of retailers actively searching for opportunities to expand their portfolios. Marks and Spencer hit the headlines as they announced plans for a new c. 16,000 sq ft store in Craigavon, on part of the site formerly occupied by B&Q. Elsewhere, TK Maxx completed their move from Bow Street Mall to Laganbank Retail Park, Lisburn, and Lidl opened at their newly developed site in Connswater, Belfast. We anticipate a busy start to Q4 with retailers pushing to finalise acquisitions and openings prior to Christmas, before turning to focus on their 2018 plans. Supply in key areas will continue to hamper progress, most notably in Belfast City Centre and in the major border towns where we expect to see the euro spend surpass levels of 2016.

Overview

Tim Hortons will arrive in NI during Q4

Activity

The Lisney Northern Ireland Commercial Property Report Q3 2017

Both opening quarters of 2017 were similarly busy in terms of new lettings, but differed in where activity was taking place. Q1 was in the majority, Belfast–centric, as we have become used to, but turning against the grain in Q2, the greater part of activity was spread beyond Belfast in regional locations.

Trader Type Location Town/City

Sostrene Grene Shopping Centre The Quays Newry

Yankee Candle Shopping Centre Bloomfield SC & RP Bangor

JD Sports Shopping Centre Bloomfield SC & RP Bangor

Inglot Shopping Centre Foyleside SC Londonderry

Specsavers High Street Conway Square Newtownards

Greggs Food & Beverage Church Street Coleraine

Caffé Nero Food & Beverage Ormeau Road Belfast

Caffé Nero Food & Beverage High Street Newcastle

Little Wing Food & Beverage Lisburn Square Lisburn

TK Maxx Out of Town Laganbank Retail Park Lisburn

Notable Transactions, Q3 2017

Industrial

The protectionist measures being imposed in the Bombardier/Boeing debate is the major discussion point in the industrial sector at present although there appears to be some murmurings of a potential solution at the time of writing. We do hope that an agreement can be reached for the greater good of the local economy. This coupled with the persistent stories around Brexit and Stormont and the news that Caterpillar are proposing to downsize has created some negativity which you would expect to result in lower activity.

However to counteract this it should be noted that according to insolvency and restructuring trade body R3 and somewhat paradoxically Northern Ireland’s manufacturing sector has the lowest rate of firms in “the higher than normal risk of insolvency” category compared to anywhere else in the UK.

As expected the summer months were generally a slower period in the market however and notably Ryobi have taken further space within Kilroot Business Park, Carrickfergus, bringing their total occupation on site up to nearly 80,000 sq ft.

A number of other deals have been completed to include the former Denny’s site at Corcrain Road, Portadown , comprising 137,660sq ft on 6.15 acres. The property has been purchased by

Armagh City, Banbridge and Craigavon Borough Council and we understand it will be regenerated to enhance the area and complement the planned park and ride facility on an adjacent site.

In addition at 5 Michelin Road in Mallusk a unit of 20,897 sq ft on a regular shaped site of 2.75 acres has been acquired for well over the asking price.

In a more provincial context up to 100,000 Sq Ft has become available in Magherafelt with the first unit in the develeopment to come to the market comprising more than 41,000 sq ft of warehouse/industrial accommodation.

Meanwhile other positive corporate activity in the sector is evidenced with the corporate purchase of Moy Park by Pilgrim’s Pride Corporation for $1.3 billion.

Overview

Ryobi took further space at Kilrrot Business Park

Activity

The Lisney Northern Ireland Commercial Property Report Q3 2017Page 6

Location Size (Sq Ft) Type

6 Corcrain Road , Portadown 137,660 Sale

Kilroot Business Park, Carrickfergus 79,500 Lease

Building 1, Unit 4 Central Park, Mallusk 22,421 Lease

5 Michelin Road, Mallusk 20,897 Sale

A3, Heron Business Park, Belfast 3,300 Sale

Total 263,788

Notable Industrial Transactions, Q2 2017

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The Lisney Northern Ireland Commercial Property Report Q3 2017

Investment

• Investment values to surpass last year’s totals and potentially break £300m

• Pension buyers remain very active in midst of inflationary pressures

• Brexit uncertainty has affected purchaser pool

Office

• Take up levels in 2017 will be less than the long term average of 300K to 400K P.A.

• There is a current derth of large requirements in excess of 30,000 sq ft.

• Supply to increase throughout 2018 (mainly refurbished buildings).

Retail

• Retail Demand strong in prime locations.

• Cost Inflation resulting in higher prices at the tills.

• Competitive tension in the coffee sector.

Industrial

• Demand from export focused manufacturing strong reflecting the fall in the value of sterling.

Outlook

Chris CampbellMarketing Manager

Jonathan HaugheySurveyor

The Lisney Research Team

David McNellisDirector (Agency)

Nicky FinniestonDirector (Retail & Investment)

Declan FlynnManaging Director

Andrew GawleyAssociate Director (Agency)

Stephen ChambersAssociate Director (Investment)

Gareth JohnstonDirector (ProfessionalServices)

Lloyd HanniganSenior Surveyor (Agency)

Industrial

A further positive announcement is that goods exports from Northern Ireland for quarter 2, 2017 shows an increase of 12% (compared to Quarter 2 in 2016).

According to figures released by HM Revenue and Customs this is the best quarter on record in nominal terms, and shows that the biggest increase from NI was to the Republic of Ireland. If a ‘hard ‘ border occurs during Brexit then this would certainly affect local exporters.