THE BELFAST MARKET THE OFFICE MARKET

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1 THE BELFAST MARKET The focus of attention north of the border in recent weeks has been on economic matters, particularly the spending cuts announced by the UK Chancellor of the Exchequer on October 20 th last. The announcement that up to half a million public sector jobs are to be cut over the next number of years has particular resonance for Northern Ireland considering that the public sector is the dominant employer in the region. Further cuts to public service jobs in the North has repercussions for the property sector not just in terms of the additional spare capacity it will release in the office sector but also in terms of the impact on consumer confidence and spending patterns which impacts on the residential, retail and leisure sectors of the market. Capital funding for roads, hospitals and public projects in the region is also potentially going to be cut by as much as 40%, which is very concerning. The occupier side of the Northern Ireland property market has been holding up relatively well in recent months although most activity in the office, retail and industrial sectors stems from rationalisation as opposed to expansion. Many of the letting transactions being concluded in the region at present comprise short term lettings on very favourable terms as tenants take advantage of the difficult market conditions. There are a number of requirements for office accommodation in Belfast which are likely to be fulfilled over the coming months and prime office rents appear to have stabilised at per square metre. In the retail sector, a number of new store openings are planned to take place over the coming months including the opening of the Liverpool FC store at Castle Lane in Belfast. It remains to be seen what impact the hike in the VAT rate which is due to come into force at the beginning of 2011 will have on spending patterns in the run up to the Christmas trading period. Some suggest that consumers will purchase big ticket items before Christmas to avoid paying a higher rate of VAT if they delay their purchase until the New Year. The investment sector of the Northern Ireland market has been certainly buoyed by a number of investment transactions concluded in the region in recent months, demonstrating that buyers including institutions have an appetite to purchase prime assets in Northern Ireland. We expect to see other investment transactions concluded in the run up to Christmas as a number of deals are currently under negotiation. For further information contact: Brian Lavery in our Belfast Office at brian.lavery@cbre.com THE OFFICE MARKET Regardless of the economic backdrop, there has been an encouraging level of letting activity achieved in the Dublin office market in recent months. Following several strong quarters, the forecast for 100,000m 2 of office take-up in the city in 2010 now seems certain to be surpassed by as much as 10%. Some of the more significant office letting transactions agreed recently include the letting of approximately 5,574m 2 to The Central Bank at Iveagh Court on Adelaide Road in Dublin 2; the letting of approximately 2,322m 2 to AOL at Heuston South Quarter in Dublin 8 and the letting of 1,325m 2 to Betfair at The Watermarque Building in Dublin 4, all of which will boost Q4 take-up levels in the capital. The next two months are significant in that they mark the end of the current CBRE Bi-Monthly Irish Commercial Property Research Report Page 1 of 5

2 development cycle in the Dublin office market, with no new office buildings due to complete in the capital after the end of Discussions in recent weeks about potentially increasing Ireland s rate of corporation tax are very worrying for the office sector, considering the extent to which this sector generally relies on international occupier requirements. While more competitive wage and rental costs are significant, the single biggest factor attracting multinational organisations to locate their office headquarters in Ireland is the prevailing rate of corporate tax so it is imperative that the 12.5% rate is maintained. There is much discussion about delays in the NAMA decision-making process. However, in the office sector, developers who are co-operating with the National Asset Management Agency appear to be in a position to conclude deals. The public sector continue to be net takers of office accommodation in the Dublin market, which is interesting considering the fact that the UK Government has now extended their ban on new leases in the public sector, which was due to end in April next year, until For further information contact: Willie Dowling or Darren Nugent in our Offices Department at willie.dowling@cbre.com ; darren.nugent@cbre.com or Paddy Conlon in our Global Corporate Services Department at paddy.conlon@cbre.com THE RETAIL MARKET The forthcoming Budget and further anticipated austerity measures are a huge concern for the retail sector of the economy, with retailers understandably concerned about the forthcoming Christmas trading season and beyond. While discount and grocery retailers appear to be weathering the storm relatively well, discretionary spend remains under significant pressure. Despite this, from a property perspective, a considerable number of retail lettings continue to be negotiated, prompted for the most part by the favourable deals currently on offer around the country. In recent weeks alone, US retailer Skechers opened their new Shuz 4 U store on Dublin s Henry Street; Next have started fitting out a second store at The Pavilions Shopping Centre in Swords; Build a Bear have opened a store at Blanchardstown Town Centre; Superquinn have opened a new store at the Heuston South Quarter development in Dublin 8; Disney has agreed to lease the former Laura Ashley store on Grafton Street; Opticks have let a unit at South Anne Street in Dublin while Book Value have started trading from a unit at Westmoreland Street in the city; Homestore & More have opened a new store in Tralee, Co. Kerry and are currently fitting out a unit in Carlow; Dunnes Stores announced plans to reopen their high-profile store on Grafton Street; Jewellery brand Pandora announced plans to open their first Irish store on Grafton Street later this month; TK Maxx has agreed letting terms for a new store at the Railway Square development in Waterford having had to close their store at Butlerstown Retail Park for planning reasons and Aldi started trading from a new unit at Blackpool Retail Park in Cork. Also in Cork, The Card Store have recently started trading from the Merchant s Quay Shopping Centre; M&S have announced plans to open a new 2,137m 2 store and cafe at Douglas Village Shopping Centre later this month while Dutch retailer Kuyichi announced plans to open their first Irish store at the Opera Lane scheme in the city. There is much anticipation about the forthcoming opening of the Forever 21 and New Look stores at the Jervis Shopping Centre in Dublin. Many transactions being completed in the retail market at present comprise short term lettings with many deals linked to turnover. This trend is likely to continue and we expect to see an increase in the number of pop-up shops in both shopping centres and high streets over the coming weeks in the run-up to the Christmas season. CBRE Bi-Monthly Irish Commercial Property Research Report Page 2 of 5

3 However, retailers will be clearly waiting for December 7 th in an effort to gauge what impact Government budgetary measures are likely to have on this sector over the next 12 months and beyond. For further information contact: Cormac Kennedy or Florence Stanley in our Retail Department at c ormac.kennedy@cbre.com or florence.stanley@cbre.com THE INDUSTRIAL MARKET Take-up in the industrial sector of the market improved significantly in the third quarter of the year with over 40,000m 2 of lettings and sales concluded in the Dublin market in the period, more than double the level of take-up achieved in the previous three months in the capital. There were a total of 36 lettings and 3 sales concluded in Dublin in Q3. Perhaps not surprisingly, most of the letting transactions being negotiated are short term in nature and rents, particularly for secondary accommodation, are very low. Headline rents for modern accommodation in prime locations appear to have stabilised at approximately 82 per m 2 although lettings are being concluded in secondary buildings at considerably lower rents in the current environment. Outside of Dublin, a number of high-profile former manufacturing facilities have been publicly offered for sale in recent weeks including the former Braun complex in Carlow, which sits on a 29 acre site; the former Schering Plough facility on acres in Bray, Co. Wicklow and the former NEC plant in Ballivor, Co. Meath on 18.8 acres. In Dublin, the high-profile Mitsubishi HQ extending to 4,138m 2 at the Ballymount/M50 Interchange has come to the market with a guide sale price of 5.5 million or 500,000 per annum on a letting basis. Other substantial properties to come to the market include the former HQ of McCormick MacNaughton on the Naas Road on a site of more than 5 acres, which is being offered for sale on the instructions of a receiver guiding 8.5 million and current HQ of the same company at Rathcoole, which is being offered for sale guiding 12 million. The focus over the coming weeks will be to conclude industrial transactions before year-end. The annual take-up statistics will ultimately demonstrate the fact that industrial transactions are being negotiated despite the economic backdrop. For further information contact: Garrett McClean in our Industrial Department at garrett.mcclean@cbre.com THE IRISH INVESTMENT MARKET As we approach the last two months of 2010, the usual drive to get investment transactions signed before year-end is upon us. With 170 million transacted in the domestic market in the first half of the year, the outcome of the sale of Liffey Valley Shopping Centre in West Dublin is eagerly awaited as this one deal has the potential to treble the spend in the first six months of the year if it is completed by year-end. Green Property is in negotiations to purchase 16 properties owned by the institution Royal Liver another transaction that has the potential to significantly boost Irish investment spend if it proceeds. Significant sales concluded recently include the sale to the UK buyer London & Regional of an office investment at Citywest in Dublin for 20 million, reflecting a yield of 8% and the sale of the freehold interest in the Café En Seine premises on Dawson Street for 8 million, reflecting a yield of 6.75%. Investors don t appear to be overly concerned about the fact that upward only rent review clauses have now been banned in Ireland on the basis that rents in many cases are now index-linked or incorporate a fixed uplift mechanism. In any event, as average lease lengths have fallen significantly, most of the risk is confined to the first break or rent review. Although yields for secondary properties remain under some pressure, particularly with rents for these properties continuing to fall, there is increasing evidence that prime office and retail yields in the Irish market have sharpened a little in recent months. However, the overseas investors who are trying to source prime properties in the Irish market are becoming increasingly frustrated by the lack of quality product being offered for sale. The risk is that these buyers will soon divert their attention and much-needed capital to other jurisdictions where investment product is more readily CBRE Bi-Monthly Irish Commercial Property Research Report Page 3 of 5

4 available. The latest data from the Investment Property Databank (IPD) confirms that capital values in the Irish market declined by 2.6% in Q However, following three years of declining values, the commercial investment market is clearly showing signs of bottoming out, with total returns declining by a mere 0.3% in the last three month period. For further information contact: Sean O Brien or Colm Luddy in our Investment Department at sean.obrien@cbre.com or colm.luddy@cbre.com THE UK INVESTMENT MARKET Capital values in the UK investment market continue to appreciate on a monthly basis. Indeed, capital growth of 0.25% and a total return 0.7% were achieved in the UK market in September 2010, according to the IPD. However, having experienced significant improvement throughout 2009 and the early part of 2010, values are now appreciating at a much slower pace, which is perhaps not surprising considering the increasingly uncertain economic backdrop. Prime yields are now back close to where they started and investors are firmly looking for compelling signs of recovery in the occupier markets. For this reason, they are focussing attention on the Central London office and retail markets, where the prospects for recovery are strongest. The fact that 27 different nationalities purchased investment properties in the London market during Q clearly demonstrates the depth of international appetite for prime opportunities in this particular market. Irish investors continue to sell UK investment assets as evidenced by the recent sale of a retail premises on London s Oxford Street for a price in the region of 55 million. An Irish investor has recently brought the Marks & Spencer store on the Kings Road in London to the market, guiding 65 million while Anglo Irish Bank are reportedly selling a retail and office building in Leeds, guiding 50 million. For further information contact: Caroline McCarthy in our International Investment Department at caroline.mccarthy@cbre.com THE DEVELOPMENT LAND MARKET There has been a noticeable increase in the number of development sites being brought to the market in recent months. Many of these sites are being offered for sale on the instructions of receivers. However, although there has been a steady increase in agricultural land sales around the country in recent months, very few sales of development land are being concluded on the open market with liquidity still compromised and huge uncertainty about economic and property market prospects. An example of a sale concluded recently was the sale of a 0.4 acre site (which included three houses in need of refurbishment) in Sandycove in Dublin for approximately 1.5 million. The recent publication of accurate housing vacancy statistics from the Department of the Environment & Local Government is broadly welcomed and will assist in meaningful analysis. The report indicates that excluding one-off housing, there are 23,250 vacant housing units complete throughout Ireland and a further 9,976 housing units almost complete. While conditions in the housing sector remain relatively weak, there is growing evidence that where prices have been reduced by approximately 50%, sales are being agreed on new home schemes. This was recently demonstrated by the sale of apartments at Booterstown Wood in South Dublin, where one bed apartments achieved an average price of 225,000 and two bedroom units achieved an average price of 310,000. There has been much focus in recent weeks on the transfer by some local authorities of surplus land holdings to the Housing and Sustainable Communities Agency, a move which effectively sees the Department of the Environment & Local Government taking the loans off the local authority s books. The CBRE Bi-Monthly Irish Commercial Property Research Report Page 4 of 5

5 local authorities are not prevented from using these lands in the future but they must seek the approval of the agency before they can develop these lands. As the implications of the new Planning & Development Act 2010 become increasingly clear, to planners and councillors alike, we are going to see much more discussion about dezoning land. For example, Wexford County Council recently voted to adopt a new Local Area Plan for Gorey which effectively dezoned as much as 300 acres of land. From a valuation perspective, dezoning or phasing (which some local authorities are advocating instead of dezoning) have exactly the same effect. There is genuine concern in the construction industry that the Capital Investment programme, which was cut back significantly in recent months, faces further cuts in the forthcoming Budget on December 7 th. For further information contact: Ronan Webster or Wesley Rothwell in our Development Department at ronan.webster@cbre.com or wesley.rothwell@cbre.com THE HOTELS & LICENSED MARKET The latest STR performance figures for the Dublin hotel market indicate that occupancy has been holding up reasonably well in recent months with 80.4% occupancy reached this September - the best return for almost two years. However, Revpar remains under some pressure due to the continuing discounting of room rate although this is certainly easing in the city. The recent opening of Convention Centre Dublin (CCD) has been broadly welcomed and the success of the venue, which has capacity for 8,000 delegates and which the promoters say has already secured a large number of advance bookings, should deliver welcome dividends for the local and indeed the national economy. Coupled with other recent openings in Dublin such as the new Aviva stadium, the Grand Canal Theatre and the refurbished 02 arena, CCD will certainly give a further significant boost to the entire hotel sector in the capital. The forthcoming sale of the prestigious Four Seasons Hotel in Dublin 4 has dominated headlines in recent weeks. CB Richard Ellis has been appointed to sell the hotel, which has 197 bedrooms including 54 suites - and the sale also includes 4 private Residences. Although it is still early in the process, we are encouraged by the strong level of interest in this prime property, particularly from overseas investors. Kilkea Castle in County Kildare has recently gone into receivership having failed to sell earlier in the year; the guide price for the Blarney Hotel & Golf Resort in Cork has been reduced from 12.5 million to 10 million and the Kenmare Manor Hotel in Kerry has now gone to best bids. Conditions in the licensed sector remain very challenging with recent figures from the industry showing that pub sales dropped by more than 14% in the first seven months of the year, following an 8.7% decline in The Parnell Mooney pub off O Connell Street in Dublin was sold recently for approximately 1 million to Eddie Fitzgerald who also recently purchased the freehold investment interest in the Café en Seine premises on Dawson Street. The Pier House pub in Howth, which is not currently trading, is being sold on behalf of a receiver and is guiding 1 million to 1.5 million. Meanwhile, Renards has recently reopened and Ron Blacks is due to reopen in the new year after a major refurbishment. It remains to be seen if the Government will implement any measures in the forthcoming Budget to ease the plight of hoteliers. We would certainly support the removal of the controversial 10 tourist tax on December 7 th and welcome any other initiatives that might boost ailing tourism numbers. Outside of Ireland, a story which has received much attention is the forthcoming sale of the St. Regis Hotel in Washington, which was purchased by a syndicate of Irish investors in Much focus has been placed on the $173 million that the investors paid for the asset but the commentary has failed to mention the fact that $90 million had been invested in major refurbishment by its previous owners, before the purchase. For further information contact: Paul Collins or Dermot Curtin in our Hotels & Licensed Department at paul.collins@cbre.com or dermot.curtin@cbre.com CBRE Bi-Monthly Irish Commercial Property Research Report Page 5 of 5