NI Property Review: The lack of agreed political institutions in the North continues to work against property markets there according to a market review prepared by BTW Shiells, commercial property consultants.

In part this is countered by planned increases in public expenditure there, investment that will serve to buoy up the property sector.

There were "areas of concern" on the Northern Ireland scene despite 2004 starting with strong positive features, according to Mr John Simpson of BTW Shiells. Further industrial casualties were expected in the face of global competition, but regeneration activity and infrastructure investment was helping to counter this.

"Critically, the lack of agreed political institutions is a negative factor that may depress economic confidence," Mr Simpson stated in the review. "A revived assembly, an expansionary budget and a more realistic trading value for sterling would, or will, be added benefits."

Economic expansion over the year would probably achieve three per cent, he suggested, and unemployment remains low. And while exports of manufactured goods fell slightly in 2003 by 0.4 per cent, public sector growth in spending was serving to counter this, he said.

Government spending would increase through 2003/04 to 2004/05 by 5.7 per cent and by 4 per cent in the following year according to budgeted figures, Mr Simpson said. Importantly, capital spending would rise from stg£750m in 2003/04 to stg£996m in 2004-05 and stg£1,066 in 2005/06.

An upbeat assessment was provided in the review by Mr Keith Shiells who said the past 12 months had been a "period of unprecedented activity in the commercial property market in Northern Ireland". The investment market was "probably stronger now than it has ever been in modern times", he added.

Prime retail yields had fallen to around 4.5-4.75 per cent over the past year, a downward shift of about 0.5 per cent, he said. Despite some stg£75m worth of retail investment property changing hands in Donegall Place, Royal Avenue and Castle Place over the past year, Northern investors had increasingly turned to British property markets given a "dearth of investment stock" in the North.

This view was repeated by Mr Paddy Brennan who commented on the investment market in the North. Investment activity had been reduced "due to a severe lack of suitable opportunities,", he said.

About half of the stg£250m handled by the company over the past 12 months had been directed towards Britain, he said.

"This desire for investment property in the UK from Irish-based investors is mainly due to the continued lack of supply of quality product in Ireland along with the unprecedented levels of investors that are now willing to invest across the water."

Prime retail yields in Belfast on areas like Donegall Place tend towards 4.5-5 per cent, he said. Retail units let in a prime position in a provincial town with 10 years unexpired term typically achieved 6-6.5 per cent, he added.

Yields in the office sector were sharpening, Mr Brennan said. Typical office investments were yielding about 6.5-7 per cent. Well-located industrial units let to good covenants were yielding about 6.5-7 per cent, but the larger amount of industrial deals in the North reflected yields of 7.5 per cent, he said.

Mr Jago Bret focused on the Belfast office market, estimating that total take-up over the calendar year 2003 had been about 41,800 sq m (450,000 sq ft), a figure similar to 2002.

"However, unlike 2002 where the private sector dominated, approximately 60 per cent of take-up for 2003 was taken by the public sector and the balance by companies from the private sector."

The economy remained in "recovery mode" however and demand from the "TMT sector" (telecoms, media and technology) continued to remain weak, with some signs of a turnaround on the horizon.

Belfast's record rent of stg£15.50 per sq ft achieved at 9 Lanyon Place for the letting to Northbrook Technology had not been bettered during 2003 or early 2004 he said. Generally rents of between stg£10.30-£12 per sq ft had been achieved for grade A accommodation in central Belfast and periphery.

"These lower than anticipated rentals reflect the weak market conditions prevailing during early 2003 and the strong negotiating position held by the public sector during a year when private sector requirements for large space were few and far between," Mr Bret concluded. Rents should harden through the current year however, given dwindling supply and improving market conditions.

The retail market, particularly in central Belfast, presented a far brighter picture according to Ms Criona Collins. "Demand continues unabated, particularly when suitable units in prime locations become available," she said.

Mango had agreed a record Zone A rental of stg£275 per sq ft at 51/53 Donegall Place. The current Zone A rate at Castle Court is stg£210 on ground and stg£130 on first floor space.

It is also an expanding market, she noted. A decision on an extension to Castle Court is expected this autumn, with a "favourable outcome" anticipated to boost space from 30,000 sq m (322,920 sq ft) to 78,000 sq m (845,000 sq ft). "

"In essence, Belfast City Centre will benefit from approximately 119,100 sq m (1,282,000 sq ft) of additional prime retail space over the next five to seven years," she concluded.