Banking on theatre setting
ONE OF THE key office blocks in Dublin’s fashionable Grand Canal Square will be seen an important test of the real strength of overseas interest in the Irish investment market when it goes for sale today, only five years after it was completed.
Sean O’Brien of CBRE is quoting a guide price of more than €75 million for 1 Grand Canal Square, a six-storey over basement building in the heart of what is widely viewed as a unique “urban village”.
At that price the investment will show a net initial yield of 7.5 per cent, but once the penthouse level and two retail units on the ground floor are let, the returns will be in excess of 8 per cent.
The glazed building faces out on to the water and adjoins the Daniel Libeskind-designed Bord Gáis Energy Theatre in an area with a heady mix of international architecture that has transformed the south Dublin docklands.
The block going for sale was built by Roy Strudwick’s Ryde Developments, an English company which made its first foray into the Irish market back in 1988 when it acquired the grounds of the old Irish Hospital Sweepstake in Ballsbridge for €6.6 million. It later offloaded part of the site to the Cosgrave Group for €4.5 million. When it came to buying the 0.65-acre site at Grand Canal Square early in 2004, prices had shot up to about €10 million
One Grand Canal Square is currently producing a rent roll of €5.8 million from 10,219sq m (110,000sq ft) of offices, 1,672sq m (18,000sq ft) of retail space and 60 basement car parking spaces. The building was largely pre-let to the US-based HSBC bank for its Irish headquarters and Accenture, the multinational management consultants.
HSBC’s overall contribution to the rent roll is €3,816,788 for three floors with a total area of 6,536sq m (70,360sq ft). Accenture pays €1,381,424 for 2,094sq m (22,551sq ft), while Warner Chilcott, the international pharmaceutical company, leases 1,046sq m (11,268sq ft) for a rent of €422,364. The penthouse level, usually the most sought after, is vacant with available space of 795sq m (8,586sq ft). Three of the five retail units are let, one if them to H Bar at €78,250 per annum, another to Power Plate Gym for €50,000.
Both HSBC and Accenture signed 25-year leases from 2007 on standard institutional terms with upwards-only rent reviews. Each company has a break option in 2022. Investors looking at the block will be well aware that the office space is already over rented at €376 to €592 per sq m (€35 to €55 per sq ft), given that another significant letting in an adjoining block last month was at a considerably lower rent.
Capita, the UK’s largest outsourcing group, leased 3,948sq m (45,000sq ft) in Chartered Land’s building at 2 Grand Canal Square at no more than €322 per sq m (€30 per sq ft). The firm was also reported to have secured a two-year rent-free period under a 10-year lease in lieu of fit-out costs.
Nevertheless, O’Brien contends that with the overhang of Grade A space being rapidly eroded and a complete absence of new developments, the general expectation is for a return of rental growth in the office market in the short to medium term.