RetailMarket:The investment arm of Anglo Irish Bank has settled for a low yield on a major new retail centre due to open next year off the top of Grafton Street, writes Jack Fagan
The commercial property investment market has got a valuable shot in the arm with the completion by Anglo Irish Assurance Company of its purchase of the retail element of a new shopping facility next to the Gaiety Theatre in Dublin's South King Street.
Although the €100 million deal was agreed last November, there was some concern as to whether it would proceed because of the wave of bad news from the US sub-prime market, the fall in global equities and the crises in international banking.
Anglo Irish Assurance Company, the pensions and investment wing of Anglo Irish Bank, settled for a net yield of only 2.75 per cent for the core investment income as well as top up payments based on the turnover of the retailers going into the centre. Anglo Irish had CBRE as its agent while Bannon advised Chartered Land, the dynamic investment and development company backed by Joe O'Reilly and headed up by Dominic Deeney.
The development, due to open in the spring of 2009, will create an important new shopping precinct off Grafton Street and opposite the side entrance to St Stephen's Green shopping centre.
A prospectus prepared by Anglo Irish has offered investors the opportunity to put €63 million into the new centre with the balance coming as loans from the bank. O'Reilly is to retain a 10 per cent interest in the retail element and hold on to 2,700sq m (29,062 sq ft) of office space on the second, third and fourth floors. This area, to be known as One Clarendon Row, is about to go on the letting market through Bannon on a floor-by-floor (or half floor) basis at a rent of around €700 per sq m (€65 per sq ft). Marcus Wren of Bannon says the space will appeal to small to medium sized firms looking for a prestigious address. The offices will be available for tenant fit out from September next.
The 3,200sq m (34,292sq ft) of retail space will be rented by H&M, Zara and Warehouse. Zara will pay a base rent of €915,000 as well as a top up rent of 9 per cent of turnover. The multiple's overall rent will be capped at €1.383 million.
H&M will have a base rent of €800,000 with a turnover related top up of €690,349.
Warehouse has agreed a rent of €600,000 for around 371 sq m (4,000 sq ft) on two levels but unlike the two other traders will not have to pay a top up charge based on turnover.
Anglo Irish told investors that rents for the South King Street centre had been set at a discount to those achieved on Grafton Street. "The key to this development will be to drive rental values going forward, narrowing the gap to Grafton Street rents." It also estimated that Zara will be paying €4,843 per sq m (€450 per sq ft). CBRE advised that long term rental growth in "all retail" will be 7.33 per cent per annum with Grafton Street rental growth at over 10 per cent based on the most up-to-date results from Investment Property Databank.
Anglo Irish will take comfort from the recent decision of Tommy Hilfiger to rent a new store at the former Grafton Street Arcade at a Zone A rent of €12,000 per sq m (€1,115 per sq ft) - almost two-and-a-half times that secured on South King Street.
Anglo Irish also told its investors: "With favourable lease terms and an emphasis on long term leases (25-year leases with breaks in years 15 and 16) South King Street offers a secure and stable stream of future cash flows from the property."
