Brian Lavery: The perfect storm hits the Belfast office market

‘The Perfect Storm’ is a novel by Sebastian Junger, based on the true story of the Andrea Gail, a swordfish boat caught in the heart of one of the worst storms to ever hit the North American sea border.

The disaster that ended the Andrea Gail’s existence in 1991 was formed when three powerful weather systems converged with the exact pressure and temperatures to create a perfect storm.

There have been a number of systematic shifts which have created extremely difficult trading conditions within the Belfast office market.

The first major challenge was the Covid-19 pandemic, which made working from home the ‘norm’ rather than a workstyle for the very few.

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The return to office occupancy has been slow but consistent in the private sector, with most commercial owners and managers favouring their workforce being in the office for at least most of the working week.

In Northern Ireland, however, the storm conditions have worsened due to the high-level of public sector offices historically based in the city centre.

The return to the office from the public sector has been a trickle at best, resulting in a large volume of old-fashioned excess space coming to the market to lease or to be sold on by the Government.

If this space was to a high standard of finish, sustainability and energy efficiency it would not be a problem.

Unfortunately, a lot of the space is of poor quality, and would require extensive refurbishment and expenditure to bring it into modern use, and to a standard that is acceptable to modern occupiers requiring strong ESG credentials.

Further unwanted pressure systems in the market are formed by a lack of development finance, with traditional banks simply adverse to the risk of extensive expenditure and loans into a market where confidence is so fragile.

The third storm comes from a lack of general confidence in the market and a severe downward movement in the value of office stock.

This has been accelerated by many of the major funds simply reversing out of the market and listing their stock for sale.

Many of the major funds, such as M&G, have put their regional office stock to the open market, and are accepting double digit yields for same.

This has had a destabilising effect even on those offices with good underlying investment constituents, such as good tenant covenants, good lease lengths and good ESG credentials.

All of the above factors have resulted in a Belfast market where there is not a single crane on the horizon building a modern office block.

There are still a number of vacancies in excellent stock, including Olympic House in Titanic Quarter, Paper Exchange, City Quays 3 in the Harbour, and a few singular floors available in The Ewart, Bedford Street.

Once this modern stock is occupied, however, where will we put any new occupiers seeking modern space for their inward investment into Northern Ireland?

The highlight of the 2000 movie adaptation of The Perfect Storm was that it starred the ever-gorgeous George Clooney in the tragic tale (I personally cannot watch his movies as it is like looking in a mirror.)

It is currently difficult, however, to see any highlight in Belfast’s current office market, except perhaps in the serviced office sector, where a number of buildings have successfully been brought back into use.

Two good examples of this are Custom House, Belfast and the Pearl Assurance building on Donegall Square, which have been refurbished to a very high standard and are to be occupied as serviced offices.

This will facilitate this part of the market and is welcome, but if we are looking to America or Europe for our next major office occupiers, or if we want to see major expansion within our current business community, there will be very little choice available in the immediate years ahead.

Brian Lavery is managing director at CBRE NI