Let’s acknowledge Covid-19 and Brexit in this opening paragraph and then try not to mention them again.  The immediate future is undoubtedly tough for many businesses. However, as we gladly move out of 2020 and into the new year, let’s look at the commentary in the commercial property sector to see where opportunities may arise in 2021.

Numerous agents have commented on an increasing demand for properties in the logistics and industrial sector, driven by an increase in the number of online retail sales this year. In their Property Snapshot for November 2020, Colliers noted that occupiers are struggling to fulfil their requirements and that this is likely to continue. They report the current national vacancy rate as 6.2%, well below the ten-year average of 8.3%, and forecast a sustained, but modest, rental growth in this sector – up to 2.1% in 2021 as demand for space remains strong while supply remains constrained. This trend has also been reported in Deloitte’s article ‘The UK real estate market – Spinning the wheel of Brexit and COVID’.  Similarly, CBRE have noted a demand in new pre-let units and ready-to-occupy facilities in their EMEA Real Estate Market Outlook 2020 Midyear Review. CBRE further commented that logistic investment opportunities lie in repurposing well connected retail parks close to cities and refurbishing units to accommodate on-demand warehousing.

With the retail sector taking a hard hit this year, various agents have discussed the changing relationship between landlords and tenants. CBRE’s 2020 Midyear Review has commented on a shift to flexible leases which in the long-term may include lease terms concerning turnover rents, including online sales as part of turnover rents, shorter lease terms, different break options, shift from quarterly to monthly payments, and insertion of pandemic clauses. Lambert Smith Hampton have echoed this, stating in their article, ‘Taking Stock in UK Retail’, that the increased adoption of turnover-based rents may well embed itself into the UK retail landscape and become the new normal for commercial retail leases. Lisney’s Belfast Commercial Report Q2 2020 has noted the trend in lease restructuring, pointing out that this provides a mutually beneficial option to allow some short term relief for the tenant in return for longer term income and more certainty going forward for the landlord and that landlords and tenants should identify these opportunities now as accruing arrears will strain the relationship and ultimately lead to business failure. It is interesting that KMPG have noted the importance of trust between landlords and tenants, advising in their article ‘Real estate in the new reality’ that businesses focus on building relationships and improving communications to ensure they are working together with key stakeholders.

Opportunities may arise in the hotel industry. Lambert Smith Hampton noted a demand for staycations this year which is expected to remain strong into next summer, in their research report, ‘Staying Afloat’, which may provide developmental opportunities by the sea. However, they also comment that increased investment opportunity will arise through distressed asset sales, stating that cash-rich investors, in particular, may be able to acquire hotel assets offering significant upside potential once trading conditions normalise. PWC also forecast an increased staycation demand in 2021. Referring specifically to Northern Ireland, they note that significant investment in the city centre’s hotels in 2018 – 2019 means that the industry is well-placed to take advantage of a new norm in tourism commenting that ongoing travel restrictions and local lockdowns, as well as the fear of quarantine on return from overseas holidays, is predicted to fuel domestic leisure tourism in 2021 (‘Staycation demand expected to fuel Northern Ireland’s tourism in 2021’).

With the move to working from home for the majority of office workers this year, many of us have wondered what this will mean for physical office spaces. In their article of 21 October 2020, ‘The Office Is Changing ….. But Development Underway’, Osborne King commented that businesses will still require some form of office presence to give them prominence and identity and while the amount of space occupied may reduce, the quality of the space will have even more importance. This view is supported by CBRE’s 2020 Midyear Review, which notes that health, wellbeing and sustainability are becoming the touchstones of occupier choice. CBRE write that occupier demand is shifting increasingly towards tech-enabled ‘smart’ space, offering development or refurbishment opportunities.  Further, they comment that, with the outlook for fluid working set to increase, occupiers will increasingly look to create more agility within their portfolios. It appears that there is still an appetite for such office developments in Belfast’s city centre with Lisney’s Northern Ireland Commercial Update Q2 2020 pointing to several continuing property refurbishment projects: The Vantage, The Kelvin and Lanyon Plaza as well as future new build spaces at The Ewart (delivered in Q3/4 2021 with a significant proportion pre-let to Deloitte), Olympic House and City Quays 3.

The last thing anyone needs is an over-ambitious attempt to “talk-up” the prospects on the horizon.  So, it is pleasing that, from our vantage point, we can see that many of these forecasts have already taken root.  We continue to carry out instructions for clients investing in Northern Ireland and further afield.  Our market-leading position, combined with the strength and breadth of our client base, gives us insights across sectors.  We are therefore well placed to work with clients, mitigate risks, and help them to maximise the opportunities.

There is no denying that times are tough for businesses at the moment, but if market commentary and our own insights to date are anything to go by, there are also opportunities ahead.  Those in a financial position to capitalise and who are prepared to move quickly with confidence may just steal a march on the overall recovery.

If you have any queries about buying, selling or leasing property please do not hesitate to contact our Commercial Property team. As one of the biggest Property departments in Belfast, our team has a wide range of expertise, including the ability to assist with property transactions in England, Wales and the Republic of Ireland.

While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.