NI’s office lettings remains low as occupiers delay decisions

Northern Ireland office occupiers continue to delay decisions on their occupational strategies, according to a new report from Savills Ireland.

With the pandemic continuing unabated for much of 2021, local office lettings totalled 171,000 sq ft, the second-lowest volume in the last decade, after 2020.

However while take-up rose by 22% compared to 2020, when just 140,000 sq ft signed, it remained two-thirds lower than its pre-pandemic five-year average of 515,000 sq ft.

According the thre recent survey, there were 38 transactions in 2021, with the average deal size falling for a second year in a row to 4,500 sq ft.

This is a decline of 10% since 2020 and a fall of 46% compared to the pre-pandemic five-year average of 8,300 sq ft.

The leasing of 11,700 sq ft in East Tower, Lanyon Plaza to e-commerce software company Bazaarvoice in Q1 was the largest deal in 2021.

Bazaarvoice relocated from their previous Castle Street office to accommodate their expanding workforce, which surpassed 100 employees last year.

In Q4, telecoms specialist Radius Connect leased 11,000 sq ft in the Water’s Edge building on Clarendon Dock, representing the second-largest deal of the year.

The office is an expansion of their footprint and is to act as a hub for their Londonderry and Galway offices.

Financial services firm Daily Pay’s lease of McAuley House, totalling 10,500 sq ft, was the third-largest deal of the year.

Despite the ongoing issues stemming from the pandemic and protocol uncertainty, investment volumes rebounded strongly in 2021, with a total transaction volume of £300m achieved.

This represented an increase of 121% on 2020 and was the highest annual turnover since 2017.

Retail has been at the forefront of investment activity in Northern Ireland since 2010, but 2021 broke this trend, with a strong year for office investment.

Total investment volumes in the sector reached £135m representing 45% market share.

Investment in this sector is a vote of confidence by investors in the continued role of the office in working life.

Oakland Holdings’ sale of the PwC headquarters at Merchant Square to a private Middle Eastern investor was the largest deal of the year.

The asset sold for £87m, reflecting a NIY of 5.23% - one of the tightest office yields ever achieved in the market.

Even at such a tight yield, this is still a premium of over 100bps on prime London and Dublin office yields and demonstrates the potential value of prime office assets in Belfast.

Highlighting how Northern Ireland can benefit from being the ‘gateway market between the EU and the UK’, Ben Turtle, director head of Office & Investment, explained: “We expect Northern Ireland’s commercial real estate investment volumes to continue its growth in 2022.

“There is an attractive yield discrepancy between Northern Ireland and other UK and Republic of Ireland markets. This may present a value play for investors as heightened levels of inflation squeeze real rates of return.

“Furthermore, Northern Ireland continues to benefit from being a gateway market between the EU and the UK, this will continue to attract investors who seek to take advantage of this unique position. There are several tailwinds at play that are providing optimism in different sectors.

“The office sector could benefit from the post-pandemic clarity and the return to full capacity. Retail investment has improved across the UK, especially within the retail parks sector, comprising 27% of investment last year. This sector has seen greater optimism as operators performed well during the pandemic and rent collection remained stable. While 2021 was a quieter year for industrial investment, the sector is benefiting from the tailwinds of e-commerce growth and rising consumer and occupier demand.”

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