Irish investors in for the long haul take recent interest rate hike in their stride

Recent concern in the UK over interest rates is not likely to deter Irish buyers as they search for further property investments, predicts Jeremy Hodgson, investment partner at Allsop & Co in London.

He believes a number of properties - in particular a portfolio of some 31 high street banks let to NatWest - will attract Irish interest at a commercial auction in London's West End today and tomorrow, October 7th.

"Our clients are taking a longer term view," he says. "They are buying investments to hold for longer than just a year or so, and although you have seen interest rates rise, with the EU in mind, there is the idea that `we are going to met one day' and rates will fall again."

Richard Auterac, director in charge of auctions at Jones Lang LaSalle, agrees, noting that the figure that is more important for borrowers, and buyers, is the rate over five or six years. "Anyway," he says, "investors are more sophisticated now and, instead of just funding through debt, they can borrow in other ways, such as equity sharing with the lending organisation. There are other ways of dealing with it rather than just existing debt."

To help take a longer view, naturally such investors are targeting buildings with tenants on leases longer than 10 years because they have a secured income for that period and then have the option of letting them in the long term.

"Of course, it is easier to fund property with leases over 10 years rather than anything less than that," says Mr Hodgson.

Following Allsop & Co's commercial auction in July, Mr Hodgson reports that Irish interest was as strong as ever; out of 191 separate lots, some 26 were secured by private investors from Ireland. "There were as many under bidders again, I would say." Overall, more than £60 million was raised at the auction, with a success rate of almost 90 per cent.

The portfolio of NatWest banks for sale through Allsop, which he expects will attract major Irish interest, include a 3,241 sq ft bank in Acton, west London, which is let to the bank for a further 20 years at £21,850 per annum and has a guide price between £240,000 and £250,000, giving a yield between 8 and 9 per cent.

It also includes a NatWest bank at Southward, SE1, which has rolling breaks in the lease. Allsop is quoting up to £675,000 and the bank virtually has 20-year leases.

Two types of bidder from Ireland were in the room at the Allsop's auction in July. "One is buying for a pension fund - a well-let investment between £250,000 and £750,000 in price; The other more `sophisticated' buyer, for want of a better word, possibly already has property interests, and will buy more high yielding property with an angle or opportunity to add value. The auction room caters to both of these markets."

As Mr Auterac explains, it is the second-type of buyer that is finding the current UK market exactly to his taste. "It is easier to increase returns by doing some active management in an improving economy like this. Mixed-use investments with residential uses above commercial property can create such opportunities because it is quite often neglected or under-utilised."

Also, he says, shop units on retail pitches which have been affected by the growth in the out-of-town market can benefit from the growth in the leisure market, as expansion-hungry pub and bar operators look for new outlets. However, there have been other newcomers to the auction room in recent months, picking up on the same angles, if not for the same reasons, as the Irish buyer. According to Mr Hodgson, traders and financial advisers from the City of London are buying as they see better values in commercial property than other forms of investment.

He says, noting that Dutch investors are making an impact due to native tax advantages from holding property of over £1 million, "there has also been a big move from City traders and financial advisers who think that the best values are in property. Annuities are not performing, so it is attractive to put property in a pension investment".

Yet, as figures from previous sales show, at the moment private Irish investors have the funds to hold their own in the market place. "They are paying `value for money' prices - not silly prices - and at market yields," says Mr Hodgson.