Yields on many properties in 2006 don't make sense as pure investment deals and, on closer examination, tend to emerge as potential redevelopment plays, writes Jack Fagan
The Wilton shopping centre in Cork city comes on the market this week near the end of a year when commercial property investments look set to exceed €3 billion. Irish investors spent another €8 billion in overseas markets.
With overall returns in the Irish market expected to reach 30 per cent, 2006 has seen a 50 per cent growth in investment activity, largely because of the €575 million sale of the Pavilions shopping centre in Swords, Co Dublin, and the decision of AIB and Bank of Ireland to embark on sale and leaseback deals for both their headquarters and much of their retail portfolios.
The sale of the Wilton centre has been anticipated for some time, following the public stand-off between the owner and Roches Stores over his refusal to allow the trader to assign the lease of its anchor store to Marks & Spencer. Other outlets owned by Roches have been rented to Debenhams.
The owner of the Wilton centre has now apparently agreed to lease the store of 3,716sq m (40,000sq ft) to Penneys for almost twice the €600,000 rent paid by Roches. This will increase the overall rent roll to more than €6 million.
Sean O'Brien of CB Richard Ellis describes the sale as "more a development opportunity than an investment sale". Sean O'Neill of DTZ Sherry FitzGerald is the joint selling agent.
The 30-year-old centre sits on a site of 7 hectares (17.3 acres) but has a floor area of only 15,704sq m (169,000sq ft). A masterplan envisages that it could be quadrupled in size.
A local area action plan also reaffirmed the potential for a higher density to include more retail, offices, a medical centre and housing.
With this obvious development potential, the selling agents will be quoting a particularly strong asking price of €285 million for the well located complex which was previously owned by anchor tenant Tesco.
While the Pavilions transaction set a new benchmark yield of 3.5 per cent for a suburban shopping centre, it will, like Wilton, be seen as a development play.
The Swords complex includes a site of over five acres which will probably be used for town centre facilities, including more retail space.
As far as CBRE is concerned, some of the yields on investment properties during 2006 don't make sense as pure investment deals and, on closer examination, tend to emerge as potential redevelopment plays.
An example is the sale of Gardner House at Wilton Place, Dublin 2, which made €82.5 million and showed an initial yield of 2.9 per cent. The block is let to PwC for another 13 years and is seen by new owner Gerry Conlon of Kildare as having long-term development potential. The same investor is also likely to redevelop two office blocks sold by Hibernian Insurance at Haddington Road and Percy Place which he bought along with an office investment for €80 million.
Although investors in Quinlan Private will also be hoping to enlarge the Bank of Ireland headquarters on Baggot Street after paying more than €200 million for it (showing an initial yield of 2.8 per cent), they may have to settle for an open market rent after five years rather than a larger complex due to planning issues.
