RETAIL INVESTMENTS:The sale of Clarks on Dublin's O'Connell Street and the Early Learning Centre on Henry Street will test the market's appetite for retail investments north of the Liffey

INVESTOR CONFIDENCE in Henry Street's potential for stellar, long-term rental growth is likely to determine the value of two important retail properties in the area, which were quietly put on the market some weeks ago.

The Early Learning Centre at 3 Henry Street - located on a prime pitch close to Arnotts department store - has a price tag of €16 million, while Royal Liver Assurance is looking to generate €13.5 million for the Clarks Shoes unit on the corner of O'Connell Street and Abbey Street.

The properties represent the first major test of this district since the onset of the global credit crunch and the prices achieved will be viewed as a measure of confidence in Henry Street's ability to match Grafton Street's sky-high rental levels.

The sale of the Early Learning Centre also sees the O'Connor family returning to the market after receiving over €40 million last August for their stake in Arnotts.

While some may view the timing of that deal as prescient, given that it was negotiated at the height of the credit boom, this building has been put for up for sale in the midst of a liquidity freeze that has crippled market activity and suppressed capital values.

And despite tensions between the Nesbitt and O'Connor families during the negotiations over Arnotts, it is understood the Early Learning Centre shop has already been offered to the consortium that now owns the capital's oldest department store.

Niall McFadden's Boundary Capital, which holds a 45 per cent stake with Anglo Irish Bank's private clients in the retail company, is also thought to have been offered the Clarks unit as both the O'Connor family and Royal Liver strive to avoid the public glare of an open market advertising campaign.

It is a selling strategy that has become increasingly popular in the current economic climate. Last week two more off-the-market deals were uncovered when it emerged that the Richard Alan and Zerep shops on Grafton Street are for sale at €30 million and €12 million respectively.

However, industry experts point out that the Henry Street deals will be driven by very different factors to those governing Grafton Street. Massive redevelopment schemes, such as the Arnotts "Northern Quarter" plan and the €1.25 billion development of the Carlton Cinema site, promise to radically reshape the retailing landscape north of the Liffey.

And if these improvements result in Henry Street overtaking Grafton Street as the capital's main shopping area, as one property agent predicts, the "opportunity for substantial rental growth is huge".

But with yields on both properties comparatively aggressive investors will have to weigh up whether this long-term focus justifies an acquisition in which borrowing costs are likely to exceed the asset's initial income.

Yet each property has clear development potential. Unlike many of the buildings on Henry Street, the Early Learning Centre shop is not a protected structure because of its reconstruction after a fire in the late 1970s. That means a new owner has a good chance of winning planning permission to add more retail space to the building.

The Early Learning Centre, a children's toy chain, which was recently acquired by Mothercare for £85 million (€106 million), pays an annual rent of €365,000 on the 186sq m (2,000sq ft) unit, equating to a yield of just over 2 per cent.

However, the reversionary yield is calculated at 2.7 per cent on the basis of an estimated rental value of €650,000. The retailer's 35-year lease dates from April 1986.

Zone A rents on the street have risen to over €7,500 per sq m (€697 per sq ft) following last June's reletting of the former Sasha shop to Best Menswear - though it's expected that unit will soon house the French label Promod, another franchise operation managed by the Best Menswear team. As a result of this deal, property agents are pencilling in steep rental increases at the next round of reviews.

The available retail space at the Clarks unit, which is situated next door to Easons' flagship outlet on O'Connell Street, could also be extended if the property, a protected structure, was refurbished.

At present Clarks, which leases the entire six-storey block, uses only the ground and part of the basement as its shop floor. But investors are likely to be more focused on the fact that the UK shoe retailer's lease expires within four years, giving a new owner the chance to gain vacant possession of the property. Clarks annual rent on the 750sq m (8,073sq ft) building is €455,000 equating to a yield of over 3 per cent.

While this latest disposal by Royal Liver has raised questions among some observers of the market as to whether the assurance firm is planning to exit the Irish market altogether, well-placed sources maintain the institution will re-invest the proceeds of recent transactions into larger lot sizes. Although Easons has been mooted as a potential buyer of the Clarks shop, it is understood Boundary Capital has signalled its disinterest in both the O'Connell and Henry Street properties.

Harrington & Co is the selling agent for the Early Learning Centre shop on Henry Street and DTZ Sherry FitzGerald is handling negotiations on the Clarks Shoes outlet at 43 Lower O'Connell Street.

No one from either firm of estate agents was available to comment on this article.