Interest rates cast a shadow over the commercial property market
15th August 2022
Irish News 15 August 2022
AS the summer season rapidly comes to an end, it is hard to remain overly optimistic about the remainder of the year given the economic background of rising inflation, increasing borrowing costs, and the surge in the cost of living.
The August Bank of England Monetary Policy Report makes for grim reading. Bank base rates have increased again by 0.5 per cent to 1.75 per cent and inflation currently running at 9.4 per cent is expected to rise to 13 per cent by the end of the year and remain at that level throughout 2023.
It is a long way from the bank’s target rate of two per cent.
The speed of the recent interest rate rise, and cost of living hikes, have caught many in the commercial property market by surprise.
How this will affect commercial property values remains to be seen but it is clear to see that the underlying fundamentals have changed substantially, particularly for those who have used debt to finance their commercial property ventures.
The other side of this coin is that those with equity, and there is lot of equity out there, will see value erosion if they leave their money in the bank.
Despite these headwinds it is clear that a number of Northern Ireland based companies are performing extremely well as they emerge from the covid pandemic.
The Ulster Business Top 100 Northern Ireland Companies 2022 list reported that the combined pre-tax profits among Northern Ireland’s biggest firms rose by 46 per cent in the last year.
On the property front we have also seen local property and construction company, McAleer & Rushe, announce a forward funding deal with student accommodation provider Vita to develop 271 student apartments off Great Victoria Street in Belfast.
Demand from food and beverage operators remains strong with Ireland’s biggest indigenous pizza chain Four Star setting out plans to open 45 new pizzerias and create 360 jobs in Northern Ireland.
Commercial property transactions have been quiet over the summer months; however, a number of properties have now come to the market, including the proposed George Best Hotel based in the former Scottish Mutual Building, the Premier Inn on Alfred Street and the 135,000 sq ft Millennium House office building beside the River Lagan.
Numerous others are being prepared for sale, the most notable of which is the 480,000 sq ft Rushmere Shopping Centre in Craigavon which went into administration earlier this year.
Whilst it is hard to see beyond the immediate economic horizon, it is clear that debt-based investors will start to come under pressure as their current finance agreements come to an end and may be forced to bring properties to the market.
Therein lies the opportunity for equity investors with cash in the bank.