Grafton Street buildings will test the market

The top end of the commercial property investment market will be tested shortly when two prime retail buildings in Dublin's Grafton Street and one on Patrick Street in Cork are either sold or withdrawn. Although the yields being offered in all three cases are among the lowest for the locations, the early indications are that the investments will be seen as A safe haven at a time of considerable economic uncertainty.

KBC Asset Management, which formerly traded as the Ulster Bank Investment Management, is seeking £5.7 million (€7.24m) for the Vero Moda building at 69 Grafton Street and £7,525,000 (€9.5m) for number 70 which is occupied mainly by TSB Bank.

John Moran of Jones Lang LaSalle, who is handling the properties, is quoting £4,275,000 (€5.42m) for the Boots Store at 71/72 Patrick Street.

Investors chasing the TSB building are being offered an initial yield of 2.98 per cent but with a rent review due on the ground floor and basement in 2004, the equivalent yield is expected to rise to 4 per cent. TSB is currently paying a rent of £165,000 (€209.51) while the balance of the rent of £243,405 (€309,060) comes from two office tenants, National Mortgage Services and Ticket Line.

The Vero Moda building is currently producing rents of £175,000 (€222,204) per annum with £32,000 (€40,631) of it coming from the fashion retailer and the balance coming from the Robert Chambers nail boutique on an upper floor. The initial yield in this case works out at 3.35 per cent while the equivalent yield is 3.92 per cent. The next rent review on the shop is due in February 2005. Boots is paying a rent of £132,000 (€185,724) for the Cork store which is held under a 35-year lease from 1987. The next rent review is due in 2002. If KBC secures the asking price, the next owner will have to settle for an initial yield of 2.85 per cent and an equivalent yield of 4.74 per cent.

The sales will come as a surprise to many as relatively few prime buildings have changed hands on either Grafton Street or Patrick Street in recent years. The owners of these and other properties on the high streets have done exceptionally well during the past eight years when the growth in rents and capital values were particularly strong.

KBC has obviously decided to take the profit at this stage when there is still a strong demand for investments on both Grafton Street and Patrick Street. Although most of the unit-linked property funds are out of the market, a number of pension funds are still looking for prime investments and more particularly a heavier weighting in the retail sector.

Interest is also coming from a number of high net worth private investors looking for a secure long-term home for their funds at a time when interest rates are falling.

The last building to change hands on Grafton Street, the BT2 Store, was sold last February by British Land for over £17 million (€21.59m). The purchaser, Irish Life, settled for an initial yield of 3 per cent but given its experience with its nine other buildings on the street - they showed an average capital appreciation in 2000 of 25 per cent - they were obviously happy with the long term prospects.