A business syndicate has agreed to pay in the region of £67 million (€85.07m) for the Bank of Ireland headquarters in Dublin's International Financial Services Centre. The equivalent yield on the investment is likely to be in excess of 6.5 per cent.
The decision to purchase the 101,000 sq ft La Touche House underlines the enhanced role being played by the private sector following the sharp fall in mortgage rates in recent months. It will be the second largest commercial property transaction this year.
Pat Gunne, managing director of Insignia Richard Ellis Gunne, which is advising the promoters, said he was not in a position to comment "at this early stage".
Hamilton Osborne King confirmed yesterday that the block had been taken off the market but said it did not expect the contracts to be completed until January.
With £37.7 million (€47.9m) available in capital allowances on top of a strong rent roll, the block has been of particular interest to high net worth individuals because it can provide a tax shelter for a significant level of surplus income from any sources. An additional appeal is that the tax breaks are not affected by the £25,000 (€31,740) cap on capital allowances for individuals which was introduced by the Government in recent years.
Denise Turner of the selling agents says the increasing popularity of syndicates is due to the fact that there are now clear strategies, including exit mechanisms and tax transparency.
Another advantage is that investors have a choice of asset, something they do not usually get in unit-linked funds.
Bank of Ireland has moved part of its IFSC operation to nearby Talbot Street, where it has leased a newly completed building of 56,000 sq ft. Most of the space in La Touche House is occupied by other international groups including IBM, Dresdner Bank, Hibernian Asset Managers and XL Insurance. Bank of Ireland is to continue to operate a bank at street level. The bank is also taking a new 20-year lease of almost 20,000 sq ft on the fourth floor at 75 per cent of the open market rental value.
Hamilton Osborne King is close to agreement on letting almost 26,000 sq ft on the third and fifth floors, which have been vacated by the Bank of Ireland. The rent will be £38/£40 (€48.25/€50.79) per sq ft, bringing the rent roll to close on £4 million (€5.1m).
The sale of La Touche House will push this year's turnover in the commercial property market to around £460 million (€584m). More than half has been spent by private investors.The turnover is expected to be about £60 million (€76.18m) less than in 2000, when the institutions rather than the private sector were the dominant players. In the past year, the funds were considerably less active because with the equity markets in disarray and values falling sharply, portfolios were deemed to be overweight in property.
It is generally accepted that many of the institutions may well be out of the market for a good part of next year, giving a clear run to the private investors. However, with banks ever more cautious at a time of great economic uncertainty, investors are likely to concentrate on well-located properties with secure income stream.
Only the most adventurous will be tempted to look at the suburban office market, the first sector to be affected by the slowdown and the surplus of space. A number of developers will be in serious trouble unless they find tenants quickly.
The retail market has largely escaped so far because of relatively buoyant retail sales and the continuing demand for shops both on the high streets and in the main shopping centres in the Dublin suburbs. Zone A rents in Dublin's Grafton Street are finally expected to hit the £300 (€380) a sq ft mark early in the new year, when three individual reviews are completed.
The owners of Blanchardstown Town Centre and the Jervis Centre are also set to benefit significantly from rent reviews now under way.
Blanchardstown should fare best because Green Property settled for Zone A rents of around £65 (€82.53) per sq ft when the complex was let just over five years ago. Moving the Zone A figure up to £160 (€203) would merely bring it into line with Liffey Valley, a centre improving all the time but still trading well behind Blanchardstown.
The next major shopping centre planned for the Dublin area, a huge complex underway in Dundrum, is not due to begin trading until 2004. The promoters have managed to persuade the House of Frazer to open its first Irish department store there.
