Investors look North with the promise of greater returns

The chance of a sustainable peace settlement in Northern Ireland and the scarcity of commercial property investments in Dublin is prompting investors to look North and particularly to Belfast.

According to the Valuation and Lands Agency, the official body for property market commentary in the North, a noticeable trend throughout 1997 was the upsurge of investment in Northern Ireland from the Republic.

In fact, some of the biggest purchases of commercial property this year in the North have been made by southern investors. Last month, for example, Friends Provident sold Royston House, in Wellington Place, to a Dublin-based consortium for £9.4 million sterling in a deal representing a yield of 10.5 per cent. According to local auctioneers, this is likely to be one of the most valuable sales this year in Belfast.

Competition for the 112,000 sq ft building with ground floor retail was fierce, but the consortium was prepared to up its bid to well over £9 million to ensure it got the investment.

It is understood that most of the finance was arranged by a Dublin accountant with extensive property interests in Dublin and elsewhere in the Republic. Most of those beaten to the deal were English property interests, long established in the northern property scene.

The purchase is just one in a series of high-profile moves into the northern market by investors from the Republic, according to Dublin auctioneers, who themselves are beginning to take a closer look at investment opportunities in the North.

The consortium which bought Royston House were advised by Farrell Grant Sparks and represented by Lisney, the Dublin auctioneering firm which has an office in Belfast. Friends Provident was advised by Richard Ellis Gunne, a new joint venture company set up recently in Northern Ireland by Richard Ellis and Gunne Property Consultants in Dublin.

According to Guy Hollis, chief executive of Richard Ellis Gunne, southern investors who have decided to turn to the northern property market "are getting value for their money". He says with office and retail properties "so expensive" in the Republic, investors with cash are particularly interested in the North. "The clearest way to compare Northern Ireland and the Republic is in the area of yields. Up here, we have average office yields of about 7.4 per cent, whereas in Dublin they would rarely rise above 6 per cent." He says commercial property in the North appreciated by more than 16 per cent last year.

Investors from the Republic seem to be more interested in office property in the centre of Belfast rather than retail, the domain of UK companies, with big names such as Boots and Argos recently acquiring prime sites in the centre of Belfast.

But even in the areas of strongest retail demand in Belfast, companies from the Republic such as Centra (controlled by Musgraves) and Carphone Warehouse have moved in.

According to estate agents, the recent strength of sterling against the pound is putting few investors off. "Most of the southern investors we are dealing with are just getting their loans in sterling here in the North and then purchasing the properties they are interested in," says Mr Hollis.

David McNellis, agency director of Lisney, says there is a lot of activity currently coming from the South. "Last week, we acquired an office block in the Donegall Square [Belfast] area for £3 million for an Irish property company making their first ever purchase up here." He says the main reason the company has stayed out for so long was because of fears of an upsurge in violence. The most symbolic example of southern expansion into the northern property market was the recent decision by Dunloe House to acquire Ewart, with its extensive property portfolio throughout the North. Dunloe is expected to sell a number of Ewart properties, but it seems unlikely it will part with some of its most prized investments in Belfast.

One area where southern investors are failing to move into is the industrial market, with the main industrial developments outside Belfast, such as Boucher Road, almost completely free of property investors from the South. But with the general increase in interest moving North, this should only be a matter of time.

The question of a political settlement is also a factor, although some auctioneers say talk of dramatic leaps forward in the property market if there is a permanent settlement may be exaggerated.

"The market has been strong for the last few years, even when violence returned after the original IRA ceasefire broke down," says Mr Hollis.