High demand in local commercial property sector helps soften the effects of global ‘credit squeeze’.

Continuing demand for office and retail property space in Northern Ireland has helped protect the local commercial property market from the primary effects of the global credit squeeze. However the recent tightening of credit may place low yield property purchases under increased pressure. The analysis follows a recent report by CB Richard Ellis on the ‘Credit Squeeze and the UK economy’ which provides an initial view of the implications for property following the collapse of the US sub-prime market.

The report highlights that the shock to credit markets poses significant pressure on property but maintains that the underlying economic activity remains positive.

Commenting on the report, Brian Lavery, Director CB Richard Ellis Belfast Office said:

“The recent market turmoil will present challenges for the UK property sector but there is much evidence to suggest that the impact will not be like that of previous market downturns. In this case we are not faced with the prospect of the very high interest rates that fuelled previous downturns. Of course tighter credit conditions can be expected following the global credit crunch but this will penalise high leveraged investors and not necessarily produce forced sellers or unduly effect unleveraged investors.”

Speaking on the implications for the local commercial property market, Brian Lavery said:

“Local investors in the commercial property market appear to be better insulated than those in other areas. Strong occupational demand coupled with lower rates for rentals in Northern Ireland means that this type of investment will continue to be an attractive option. Office rental rates here have not witnessed dramatic growth so there is much less chance of a readjustment compared to other UK cities.”

He continued:

“However some investors could be adversely affected if they have recently purchased at very low yields or where properties have been left vacant. In these cases the low yields allow no margin for refurbishment and transactional costs thereby exposing them to a higher level of liability.”