With a tenant line-up of Zara, H&M and Warehouse, the Gaiety Centre should prove a major boon for the Grafton Street area, writes Jack Fagan

GRAFTON STREET'S declining fortunes against a resurgent Henry Street and a hugely appealing Dundrum Town Centre are finally to receive a welcome boost with the opening tomorrow of the Gaiety Centre, a major new shopping complex next to the Gaiety Theatre on Dublin's South King Street.

The very modern block - designed by architects Andrzej Wejchert and fully glazed to generate lightness, transparency and invite interaction between the street and interiors - will have two major traders that Grafton Street has long been craving: Zara and H&M, as well as Warehouse, which is relocating from Grafton Street.

The three big name traders have a strong appeal among trendy young shoppers in their 20s, 30s and even 40s who are the main spenders on chainstore fashion.

Some of these shoppers will be heartened by the news that Tommy Hilfiger will be opening shortly next to Marks Spencer on Grafton Street but for others the American icon is still trailing far behind Ralph Lauren, which has still not made a Dublin appearance on its own.

Whatever the latest fashion trends, Grafton Street will be a major beneficiary of the South King Street centre which has eight storeys in all, two of them below ground.

The three high profile shops will share 3,250sq m (34,292sq ft) on the ground and first floors and will obviously do well in what is undoubtedly one of the most important new retail buildings completed in the city centre in recent years.

It was developed by Joe O'Reilly's Chartered Land company which has retained ownership of 2,700sq m (29,062sq ft) of offices on the second, third and fourth floors as well as a small number of apartments at penthouse level.

In what is now seen as a masterful stroke, the developer with major stakes in Dundrum Town Centre, The Pavilions in Swords and the Ilac Centre persuaded the investment arm of Anglo Irish Bank last December to buy 90 per cent of the retail element of the scheme for a knockout price of just over €101 million.

Incredibly, the 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. The deal was signed off last January just when the storm clouds were gathering over the commercial property market.

It was, in fact, the last significant retail investment deal in the Grafton Street area before the market plummeted. The only possible silver lining for the well heeled investors attracted by Anglo Irish is that if the top-up rents on turnover on both the Zara and H&M stores do not kick in in the second year, the purchasers will not have to pay the full capitalised value.

Yields on the city's main high street - as distinct from secondary streets such as South King Street - are now generally acknowledged to be over 4.5 per cent and rising.

Some experts might well argue that yields on secondary streets like South King Street offer better prospects through rental growth than Grafton Street where the sale of leases and investment properties is frozen.

Roderick Nowlan, investment director of Bannon, who advised Mr O'Reilly, recalled that Grafton Street had achieved its "dizzy rental heights" as a result of the huge demand from international retailers to gain access to the "Celtic cubs" and the distinct lack of space on the street, regardless of quality.

"If these factors are reversed the impact on value is profound. In addition, the majority of store formats on the street are poor by international standards and are unlikely to prove attractive going forward."

Anglo Irish Bank's advisers, CB Richard Ellis, were somewhat more optimistic, telling investors that the long term rental growth for "all retail" was 7.33 per cent per annum with rental growth on Grafton Street set to rise by 10 per cent based on the most recent returns from Investment Property Databank.

Today's findings on the property market from the very same IPD will paint a very different picture.

Under the rental terms agreed with Zara, they were to pay a rent of €915,000 as well as a top-up rent of 9 per cent of turnover. The overall rent is due to be capped at €1.383 million. In the case of HM, the base rent will be €800,000 with a turnover-related top up of €690,343. Warehouse agreed a rent of €600,000 for around 371sq m (4,000sq ft) but, unlike the other two traders, is not committed to an additional top-up charge based on turnover.

To attract private investors into the South King Street deal, Anglo Irish promised: "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 steam of future cash flows from property."

Those with money in the new centre will be closely monitoring that advise.