Irish Life has strengthened its hold on Dublin's Grafton Street by buying the BT2 store for over £17 million. The purchase means that the fund now owns 10 buildings on the street.
Irish Life will have an initial yield of 3 per cent on its latest transaction but based on recent performances it can look forward to significant rental and capital growth. The nine other investment properties on the street showed an average capital appreciation last year of about 25 per cent.
British Land, which owned the BT2 store, has also sold two retail buildings along Patrick Street in Cork to Irish Life for over £6 million. It will now own six stores on Cork's principal shopping street. The BT2 store at 28/29 Grafton Street was occupied by Marks and Spencer until it moved into the redeveloped Brown Thomas premises on Grafton Street a few years ago. The five-storey building which has now changed hands has 16,000 sq ft of retail space on three floors and a further 12,000 sq ft of offices on the two top floors.
The building has been much sought after by traders over the years because of its broad street frontage and its larger than usual footplate - the street level has around 6,000 sq ft compared to an average of about 1,200 sq ft in other stores.
The BT2 rent of £550,000 per annum equates to a Zone A rate of over £200 per sq ft. According to Sean O'Brien of Irish Life, the Zone A rents on Grafton Street are heading for £300 per sq ft and in the case of BT2, he estimates the open market Zone A rent to be over £250.
The UK cosmetics company, Lush, recently agreed a Zone A rent of £260 per sq ft for a store at the bottom of Grafton Street, but even this figure was below the £292 paid by JD Sports for a newly developed unit opposite the Jervis Centre on Mary Street.
Irish Life can also expect considerable growth on its latest investments in Cork which are particularly well located. The Oasis store, bought for over £4 million, is located at the junction of Patrick Street and Princes Street and has double street frontage. The four-storey building is producing a rent of £112,000. The second store, which cost over £2 million, is rented by Style Barratt at £71,000 per annum.
The low yields now applying on the main high streets have effectively pushed private investors out of contention for investments in these areas. Institutions are in a better position to handle the initial shortfall in rents in a market where rents and capital appreciation are still rising.
Sean O'Brien says they have every reason to be optimistic about the retail market because of the increases in consumer numbers and disposable income. On the supply side, the strict new retail planning guidelines means that we are unlikely to see much retail development in the future.
Irish Life has every reason to have faith in Grafton Street where its investments have fared exceptionally well over the years. In the early 1970s it paid a mere £42,000 for the Club Tricot retail premises. That building is now producing a rent of £100,000, putting a capital value of £4 million on the property.
The Monsoon store, bought six years ago for just over £2 million, now has a valuation of around £5 million; the Scholl store, acquired in the early 1990s for over £2 million, now stands at £4.5 million while the Spectra shop, bought around the same time for £1 million, now has a book value of close to £3 million.
