Investors looking for immediate and secure income, coupled with the opportunity to add value through a range of asset-management initiatives, will be interested in the opportunity presented by the sale of the SouthGate Shopping Centre in Drogheda, Co Louth.
Developed by Phil Reilly’s Shannon Homes and his business partner, Meath businessman John Stanley, at a cost of €120 million in the early 2000s, SouthGate is a purpose-built mixed-use scheme comprising 57,350sq ft of retail space, 93,600 sq ft of office and retail accommodation, 64 apartments and 730 car spaces. The subject property is being offered to the market by agent Colliers at a guide price of €31.5 million.
While the retail portion of the development is anchored by Dunnes Stores (owner-occupied) and includes a mix of local retailers offering daily shopping, convenience uses, food/beverage and leisure options, this element of the scheme accounts for just 17 per cent of the overall annual rental income of €2.47 million per annum. The majority of the rent roll is derived from SouthGate’s offices (44.5 per cent) and residential rental units (38 per cent). There is additional mast income of €18,000 per annum.
The offices at SouthGate have a strong tenant base, with the HSE, Tusla and Coca-Cola accounting for some 90 per cent of the annual rental income. The HSE holds two leases for 15 years from June 2022 and December 2017 respectively, at a combined rent of €360,592 per annum from where it operates its Environmental Health Services offices. Tulsa, the State-backed child and family agency, has a 10-year lease from July 2019 at a rent of €172,000 annually.
Coca-Cola, which employs around 200 people in Drogheda, uses Southgate to house its integrated services organisation, which provides a range of support services globally, including finance, procurement, human resources. Coca-Cola holds a lease for 20 years from January 2011 at a rent of €438,508 per annum, subject to a break option in June 2026 subject to nine-months’ written notice.
The weighted average unexpired lease term (WAULT) on the commercial element at SouthGate is 5.68 years to break and 7.89 years to expiry.
The residential element of the scheme currently comprises 64 units, with a mix of 11 one-beds, 40 two-beds and 13 three-beds. The apartments are relatively large with an average unit size of 878sq ft and come to the market in walk-in condition. They are currently under-rented, according to the selling agent, with average rents for the one-beds at €1,025 per month, two-beds at €1,224 per month and three-beds at €1,423 per month. Locally, the average rents in Louth and Meath stand at €1,550 and €1,706 respectively, according to the latest Daft.ie rental report.
In terms of its asset management potential, SouthGate offers the prospective purchaser to increase the scheme’s current income through the letting of its remaining vacant units and reversionary development potential through the addition of a further 48 apartments subject to planning permission. There is also potential subject to planning, according to the selling agent, for the addition of new commercial space at the scheme.
Drogheda has seen considerable investment in commercial and residential development over the last number of years. The town sits at the centre of economic activity on the M1 motorway corridor, and is home to a range of established multinational and indigenous businesses across multiple industry sectors. The town has a population of 41,000 and a catchment area of 1.7 million people within 60km, some 40 per cent of which are aged between 20 and 44.
Should a sale of SouthGate proceed at the guide price of €31.5 million, the purchaser would be in line for a net initial yield of 6 per cent following the payment of standard purchaser’s costs of 9.96 per cent.
Michele McGarry, head of capital markets at Colliers, says: “We expect strong interest in the sale of Southgate, which is an exceptional mixed-use investment opportunity.
“With a guide price which equates to €152 per sq ft, a figure which is substantially below current build costs, the quality of office tenants, multinational companies and government, together with the exceptional quality of the residential units, makes SouthGate an excellent investment opportunity. The vacancy on the retail units will allow the purchaser to add to the tenant mix and ultimately drive the income.”