Irish Commercial Property Investment and the Northern ...
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By Dr Walter Boettcher Head of Research and Economics August 2021 In practical terms for Irish merchants and those who trade with Ireland, Brexit and the Northern Ireland Protocol are synonymous. Evaluating the impact of the Protocol on Northern Irish and Irish Republic property markets, though, is difficult given that its implementation remains incomplete and that the likelihood of its implementation in its present form looks increasingly unlikely. The recently released government command paper ‘Northern Ireland Protocol: the way forward’ (July 2021) may have provided greater certainty about UK intentions, but will lead to another period of economic and political uncertainty as the EU digests and responds to the latest set of comprehensive proposals. Should property professionals be worried that ongoing uncertainty will bring their markets to a standstill? Not yet, is perhaps the wisest answer, given that the Protocol’s impact is not definitively visible in the transactional data. What may remain unrealised though, is the ‘upside’ that a satisfactorily functioning agreement would bring. Irish Commercial Property Investment and the Northern Irish Protocol
Transcript of Irish Commercial Property Investment and the Northern ...
By Dr Walter Boettcher Head of Research and Economics
August 2021
In practical terms for Irish merchants and those who trade with Ireland, Brexit and the Northern Ireland Protocol are synonymous. Evaluating the impact of the Protocol on Northern Irish and Irish Republic property markets, though, is difficult given that its implementation remains incomplete and that the likelihood of its implementation in its present form looks increasingly unlikely. The recently released government command paper ‘Northern Ireland Protocol: the way forward’ (July 2021) may have provided greater certainty about UK intentions, but will lead to another period of economic and political uncertainty as the EU digests and responds to the latest set of comprehensive proposals. Should property professionals be worried that ongoing uncertainty will bring their markets to a standstill? Not yet, is perhaps the wisest answer, given that the Protocol’s impact is not definitively visible in the transactional data. What may remain unrealised though, is the ‘upside’ that a satisfactorily functioning agreement would bring.
Irish Commercial Property Investment and the Northern Irish Protocol
Measuring the impact.
The impact of the Protocol is hard to quantify. Reliable data is hard to come by given inconsistencies in the degree of market transparency and reporting requirements between the North and the Republic. The Republic completes far more ‘off market’ and ‘confidential’ deals offering far less visibility than in the North. In contrast, the North, due to its smaller market, offers far fewer deals to act as market indicators and comparators. Nevertheless, if Irish Republic data (Colliers proprietary) and NI data (Property Data Ltd) are compared, this shows that post-Brexit trends in H1 2021 suggest that both markets are relatively resilient. Given unmistakeable weakness in 2020, this market resilience may be arising from a boost from progress in dealing with COVID-19 and is not greatly affected by Protocol uncertainty.
Across the first half of 2021, €2.7bn was transacted in the Republic and £142m in Northern Ireland. Despite a significant difference in volumes that reflect the differing size of the markets, both markets in H1 are up compared to their respective pre-pandemic five-year H1 investment averages. The Republic is up by 16 per cent, and NI is up by 79%. In contrast, UK investment volumes were down 14% against the five year H1 average, so in this limited sense, NI outperformed the rest of the UK despite Protocol uncertainty.
‘Belfast has huge potential, underpinned by its young talent pool and emerging tech platforms. While Protocol uncertainty does not help, even more fundamental is the lack of required cohesion across Stormont departments and local government needed to bring forward generational changing real estate solutions to capture this potential. Belfast City Council, unlike its peer group UK counter parts, has no development powers. In urban regeneration terms, BCC is simply a planning department. Until such times as the NI Assembly and the City Council recognise that best in class real estate and employment are intrinsically linked, then much of Belfast’s potential will either be delayed or diverted elsewhere in the UK!’
Jonathon Millar, MD Belfast Agency
Quarterly investment Northern Ireland ( £ millions )
£0
£100
£200
£300
£0
£100
£200
£300
Quarterly total Two quarter total
Q2
16
Q2
17
Q2
18
Q2
19
Q2
20
Q2
21
Source: Colliers
Quarterly investment Irish Republic ( € billions )
Quarterly total Two quarter total
€0
€2
€4
€6
€0
€2
€4
€6Q
2 16
Q2
17
Q2
18
Q2
19
Q2
20
Q2
21
Source: Colliers
Post-Brexit investment volumesH1 21 compared to five year pre-Covid H1 average¹
100%
80%
60%
40%
20%
0%
-20%Republic NI UK
16.1%
79.1%
-14.1%
¹Five-year average from 2015 to 2019Source: Colliers, Property Data Ltd
Irish Commercial Property Investment and the Northern Irish Protocol | Colliers2
Explaining resilience.This relative resilience of the markets in this period of political uncertainty and potential economic discontinuity is at first glance surprising. The Republic of course benefits greatly as an Anglo-American bridge to Europe, especially for the US multinational tech operators. This continues to generate both a steady demand for commercial space, but also increasingly a steady demand for residential property to house a growing workforce. The BTL sector coupled with the tech sector is enough in its own right to explain the stability that is apparent in the data.
In contrast, Northern Ireland cannot boast the same level of international tech sector development, despite harbouring a fledgling fintech sector and a growing specialised academic, legal, and tech start-up milieu. The NI market though is
supported traditionally by UK government and associated professional services demand, driven by the combination of a well-educated workforce and low cost work space. NI though is a small market and, like all small markets, is subject to substantial transactional volatility. In fact, careful examination of the deal flow shows that one large deal is responsible for the positive H1 number detailed above. In this instance, the purchase of Merchant Square (Wellington Place, Belfast) for £87m by SPS Investment (Saudi) was decisive, accounting for well over half of NI H1 investment.
When considered together, though, transactions both north and south of the border have a certain set of similarities. Some related to asset characteristics and some related to investor composition.
‘Capital Markets in Dublin and Belfast remain resilient. International clients see these two cities as two distinct countries with different regulatory regimes and investment decisions are often aligned to targets linked to national exposures. We see greater risk in occupier markets, mainly retail and manufacturing linked directly to import/export. Recent comments from M&S seemingly bear this out.’
Declan Stone, MD Colliers Dublin
Irish Commercial Property Investment and the Northern Irish Protocol | Colliers3
Long secure income.
Even a cursory inspection reveals that most transactions were linked either to long leases, to very secure tenants, including multi-national tech and professional services companies, government or supermarkets. Likewise, investors were also targeting operational real estate - assets that are linked intrinsically to the operations within, including build-to-rent apartments, student accommodation and care homes. All of these assets are linked to basic demographics and not as sensitive to economic shocks as other assets. In short, assets with secure income have dominated.
Cross border investors.
Transactions both north and south of the border, were dominated by cross-border investors who accounted for well over 50 per cent of transactions in both locations. These investors are potentially the most sensitive to political and economic turbulence given the implications that instability can have on currency movements as well as tax and regulatory environments. Nevertheless, cross border investors are also part of a substantial demographic wave that has generated a vast surplus of capital globally. Their strategies may vary, but they all share the same common problem on where to find yield in a low interest rate environment. Cross border support for Ireland north and south stems, in the first instance, from this very basic force which is forecast to continue for the next decade. It is this search for yield that may explain, in part, cross border investors perception of political and economic risk.
Given the UK’s recent proposals for streamlining the Northern Irish Protocol and given the EU’s initial refusal to reopen the Protocol for negotiation, the runes suggest a further period of fraught uncertainty in the autumn. Given that momentum in property markets is already discernible in both NI and the Republic as COVID-19 looks increasingly manageable, the likelihood is that while commercial property markets may not reach their full potential, they will continue to show encouraging signs of stability arising from investor confidence.
‘The Protocol uncertainty may also mean that cross border investment and development spend from southern Ireland to the north will remain limited, if not decline. Likewise, north to south capital migration looks likely to increase until the Protocol impasse is resolved.’
Declan Stone, MD Colliers Dublin
Irish Commercial Property Investment and the Northern Irish Protocol | Colliers4
For more information
London
Walter [email protected]+44 7824 691586+44 20 7344 6581
50 George StreetLondon W1U 7GA
Belfast
Jonathan [email protected]+44 78 0252 0009+44 28 9051 1008
25 Talbot StreetBelfast BT1 2LD
Dublin
Declan [email protected]+353 87 258 3015+353 1 633 3732
Hambleden House19-26 Pembroke Street LowerDublin D02 WV96
This report gives information based primarily on Colliers data, which may be helpful in anticipating trends in the property sector. However, no warranty is given as to the accuracy of, and no liability for negligence is accepted in relation to, the forecasts, figures or conclusions contained in this report and they must not be relied on for investment or any other purposes. This report does not constitute and must not be treated as investment or valuation advice or an offer to buy or sell property.
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