Occupier and investor demand for commercial property in NI falls again

Overall demand from both occupiers and investors fell in the quarter, with industrial property the only sector where demand wasn’t in decline.

A net balance of -4% of respondents in Northern Ireland said that occupier demand fell in Q4 2022. This masked a significant contrast between the industrial sector on the one hand and the office and retail sectors on the other. A net balance of +41% of respondents said that demand was up in the industrial sector. Meanwhile, the net balance for office and retail space were significantly negative: -20% and -47% respectively.

In relation to demand from investors, the overall net balance was -10%. Falls in demand from investors were evident in the office (-23%) and retail (-50%) sectors. Meanwhile, enquiries from investors for industrial space were up according to a net balance of +43% of respondents.

As a result of the deterioration in demand, rents and capital values are expected to fall. A net balance of -33% of respondents in NI indicated that they expect net capital values to fall across all sectors over the first quarter of 2023.

Meanwhile, a net balance of -22% of respondents expects a fall in rents over the next three months. The biggest fall in rental expectations was seen in the retail sector, with a net balance of -60%. Meanwhile, +20% of respondents expect industrial rents to increase over the next three months.

Brigid O’Donnell of MRP investment & development in Belfast, said: “I believe we are currently in a downturn which could deteriorate into the first and second quarter of the year but I am optimistic that the market will improve by the end of 2023.”

Henry Taggart of OKT in Coleraine, explained: “Whilst commercial property in the Industrial sector remains buoyant, other commercial property types seem to be experiencing a degree of decline in terms of buyer and tenant demand and capital and rental value achievable for all the well-known reasons.”

Looking to a brighter future for Northern Ireland, Tarrant Parsons, senior economist at RICS, added: “The investment side of the UK commercial real estate market has been significantly affected by tighter monetary policy of late, with higher borrowing costs weighing on investor demand and prompting an adjustment in valuation levels.

"Indeed, linked to the rise in government bond yields over the past six months, capital values have pulled back noticeably of late, while expectations point to this downward trend continuing over the near term.

"That said, for now at least, pockets of resilience are visible on the occupier side of the market, with tenant demand still edging higher across the industrial sector, while the outlook for prime office rents also remains in positive territory (perhaps supported by more sustainable features). Going forward, the broader economic landscape will be crucial in determining how trends across the occupier market unfold from here.”