From the WSJ Real Estate Archives

Cheap Space, Investment
Work in Belfast's Favor

by Molly Neal
From The Wall Street Journal Online
March 06, 2008

Belfast's lagging economy never got the same boost as Dublin. But with some of the cheapest office space in Europe and significant new retail investment, the city's real-estate market may be better positioned than many to withstand the economic downturn.

The city's reputation for low office rents will probably work in its favor as companies become more cost-conscious. At the same time, Belfast's business outlook in general has been brightening since Protestant and Sinn Fein leaders entered a power-sharing agreement last spring.

[Victoria Square, with 650,000 square feet of retail space, is the city's first shopping center since 1990.]
Victoria Square, with 650,000 square feet of retail space, is the city's first shopping center since 1990.
Belfast is more insulated from the global credit crunch because of its mix of tenants. Many other European capitals such as Dublin and London depend heavily on financial-services businesses and face growing vacancy rates and falling rents as the global credit crunch leads to downsizing. But 60% of Belfast's office tenants come from the public sector.

Belfast may even benefit from the credit crunch if the hard times spur businesses to seek cheaper space. The city's average office rents are $24.83 per square foot, rising to about $28.82 per square foot for prime space around Donegall Square. By comparison, prime rents are $126.20 per square foot in the City of London and $95.43 in Dublin, according to CB Richard Ellis.

Prices are expected to stay low because a lot more secondary office space is about to hit the market. The Northern Ireland Civil Service, one of the largest tenants in Belfast, is planning to outsource its 3.8-million-square-foot property portfolio. The government department will transfer control of its properties to the outsourcing partner for 20 years and will continue to occupy the space it needs.

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The outsourcing partner will be responsible for disposing of the unwanted space either by selling it or leasing it to others. Land Securities Group PLC's Trillium division is one of the finalists for the contract along with private-property company Telereal. It is expected to start in April 2009.

Private-wealth management firm Citi Quilter, a unit of Citigroup Inc., opened a Belfast office last month, taking 70,000 square feet in Donegall Square West.

[Photo]
The former Scottish Provident building was sold in January to an unnamed private investor.
To be sure, Belfast is witnessing the same slowdown in commercial sales activity as the rest of Europe and the U.S. With credit more expensive and harder to get, sales throughout Ireland totaled $2.59 billion in 2007, down from $5.48 billion in 2006, according to Jones Lang LaSalle.

Nevertheless, the January sale of the former Scottish Provident building to an unnamed private investor yielded $42 million to ING Real Estate, part of Dutch financial-services institution ING Group. That price represented an initial net yield of just 3.5%. Average yields on office properties in Belfast have been about 4.5%.Brian Lavery, director at CB Richard Ellis, says the prices in the investment market remain strong because 99% of properties are in private hands, rather than institutions or funds. As a result, he notes, there are fewer forced sellers.

Meantime, Belfast's retail reputation will be transformed tomorrow with the opening of Multi Developments' Victoria Square, the first shopping center to open in the city since 1990. Anne Marie Murphy of Belfast property agency Savills Hamilton Osborne King said Belfast has struggled in the past because it hasn't had the right type of space to attract big-name retailers.

Victoria Square is an 800,000-square-foot site of which 650,000 square feet is retail; the remainder is restaurants and leisure.

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