Invest NI offers funding for Grade A office building

Francess McDonnell

Northern Ireland’s regional business development agency, Invest NI, may offer money to property developers in the shape of mezzanine or equity finance to persuade them to build new Grade A office space in the North.

The Enterprise, Trade and Investment Minister announced that the agency will launch a scheme to provide finance to developers on commercial terms in order to create new office accommodation which is in short supply locally.

Arlene Foster said Invest NI had commissioned a report to investigate whether government intervention would be advantageous in the market following the crash in commercial and industrial property prices locally.

Being able to offer suitable office accommodation was an important component of Northern Ireland’s investment proposition, the Minister said.

The report has shown that demand for Grade A office accommodation has remained relatively steady over the past three years but, with limited new development taking place, the supply has fallen.

“The lack of development may be due to constraints on bank lending to fund Grade A office space developments,” Mrs Foster added.

The Minister said she hoped that recent increases in office rents in the North would improve the financial viability of commercial property projects and encourage both developers and their financial backers to re-enter the local market.

But in the meantime Mrs Foster said Invest NI would explore whether offering mezzanine or equity finance to developers on commercial terms would act as a “short-term intervention” to stimulate the development of new Grade A office accommodation.

Invest NI has said it will actively seek “expressions of interest” in the scheme from property developers from next month.

The initiative comes as a separate report this week by commercial property agents Lambert Smith Hampton highlighted the current shortage of Grade A space available for international companies locating in Belfast.

The agents' annual UK Office Market report showed prime rents in Belfast went up 12 per cent in 2014 – the largest increase outside the southeast of England.

But the report said no new office space was currently being developed in Belfast except the Harbour City Quays project.

Stuart Draffin from Lambert Smith Hampton in Belfast said: "Despite a healthy demand for Grade A office space and a limited supply of that space, the most recent lease terms secured still don't yet justify new build activity.

“Banks are definitely keen to discuss proposals again but it is understandable they are nervous about speculatively supporting a new build scheme that would require rental terms previously not seen before in Belfast to make it viable. If City Quays was not available developers would be in a stronger position to negotiate terms on design and build proposals”.

The agents estimated that rents on prime office space in Belfast would need to rise by 20 per cent to make new build developments viable for private property developers and enable them to obtain bank finance.