Irish investors buy Covent Garden portfolio for €114m

A high profile retail investment in the heart of London has been bought by a group of Irish investors. Jack Fagan, Property Editor, reports

The outflow of investment funds from Ireland is continuing with the purchase this week by an Irish consortium of the Royal Opera House retail portfolio in London's famous Covent Garden for £80 million sterling (€114 million).

The 16 retail units will be owned on an equal basis by clients of Anglo Irish Bank's private banking division and Clarendon, the privately-owned Irish company that operates the Powerscourt Centre in Dublin 2.

The new owners estimate that with 11 rent reviews due to be agreed this year, the investment should be producing a net running yield of over 6.4 per cent by the end of 2004.

The acquisition of such a prime retail portfolio will be seen as a major coup by the Irish investors given the huge international competition for top class retail properties in London. The investment was owned since 1999 by Equitable Life Assurance Society and was bought off-market for the consortium by Denise Turner of Hamilton Osborne King.

More than three years ago Equitable Life also sold a range of specialist shops in Covent Garden market for £94 million in a deal that produced an initial yield of 4.47 per cent and a reversionary yield from March, 2005, of 5.9 per cent. This week's purchase at a projected yield of 6.4 per cent underlines the infinitely better value available in the UK compared to Dublin. A prime retail investment in Grafton Street is currently on the market at an initial yield of 2.25 per cent and an equivalent yield of just over 3 per cent. However, it is becoming increasingly difficult to source strong retail investments in the UK now that many of the funds are under weight in property and buying once more.

The retail portfolio at the Royal Opera House is currently producing a rental income of £4.6 million from 16 modern shops and a kiosk with a total floor area of 3,158 sq m (34,000 sq ft).

Denise Turner says that Covent Garden has experienced very strong rental growth over the last 10 years and, with its exceptionally high levels of pedestrian flow and tenant demand, they expected this trend to continue. The rent review settlements already agreed on three of the stores have been at a Zone A level of £515 per sq ft. All the shops have Zone A areas of 20 sq ft and the going rate has already increased to £535 per sq ft.

The high profile fashion retailers in the centre include Monsoon, Gap, Nine West, East, Quicksilver and Dockers. There are also international brands like Boots, The Disney Store, Gadget Shop, Molton Brown and Godiva.

Covent Garden has become a world class retail and leisure destination attracting some 30 million visitors a year. Six of the units front onto James Street, one of the busiest pedestrian streets in London, linking Covent Garden underground station with Garden Market. A further eight shops front onto Covent Garden Market with the remaining two fronting on to Russell Street.

Clarendon Properties has built up significant development and investment portfolios in Ireland and UK retail property markets. Its principals are Tony Leonard who has many years experience in retail management, and Paddy McKillen, whose property interests include the Jervis Centre in Mary Street, Dublin 1. Their company, Clarendon, bought several retail properties including the Powerscourt Centre and Queen's Old Castle and Savoy centres in Cork, when Power Securities were put into receivership.

Two years ago Clarendon paid €22 million for the former Bank of Ireland building running from College Green to Suffolk Street. A new planning application is to be lodged shortly to convert it for use as a department store with a floor area of about 2,787 sq m (30,000 sq ft). .

Anglo Irish Bank will obviously be relying on Clarendon's expertise in the retail area to manage the Covent Garden portfolio. The bank has been devising innovative investment opportunities for its client base across all asset classes. It has raised several hundred million euro of equity for various property, equity and bond transactions as well as alternative investments. The average subscription by its clients for the London property is £250,000.

With relatively few commercial property investments available in the Irish market, investors are increasingly looking to the UK and France to buy rental properties. Last year, Irish investors spent between €1.5 billion and €2 billion in the UK and agents specialising in that market expect the figure to rise further in the year ahead.