Arnotts will get two acres of extra space after buying four businesses on Henry Street for €40m, as well as Independent Newspapers' offices on Middle Abbey Street. Jack Fagan, Property Editor, reports

Arnotts is about to embark on a major expansion of its department store in Dublin city centre. The newly privatised company is paying over €40 million for four adjoining business premises on Henry Street and has also agreed purchase terms for the offices and former printing works of Independent Newspapers on Middle Abbey Street.

Hamilton Osborne King, which handled the sale of the Henry Street shops, is also advising Independent Newspapers.

The two acquisitions will give Arnotts almost two acres of additional space stretching from Middle Abbey Street back to Henry Street.

Though the store has yet to complete formal contracts for the purchase of the newspaper premises, it is likely to be paying around €26 million before the end of the year for the building, partially unused since the Independent group moved its printing operation to Citywest.

The publishing group will be leasing back office space until an alternative headquarters is found in the city centre. Demolition work on the former printing works backing on to Princes Street has already begun.

Arnotts is separated from the Independent by a narrow walkway running from Middle Abbey Street to Princes Street. Dublin City Council might well agree to close off this public access if asked to do so, but in any event, Arnotts is likely to extend its retail operation into the lower floors only of the Independent. With Nesbitt Acquisitions already heavily borrowed since paying €210 million to buy out the shareholders in Arnotts, it will be anxious to minimise redevelopment costs after spending more than €65 million on the Independent building and the four retail investments on Henry Street.

Its most likely option will be to link up with a construction company to redevelop the newly acquired sites on a joint venture basis. This would allow a developer to retain ownership of the upper floors for offices in return for the new retail areas.

The new shopping facilities may eventually include a large yard at the rear of the four retail investments Arnotts has just bought from Royal and Sun Alliance. The four adjoining buildings, separated by only two shops from the department store, are rented by UK multiples HMV, Boots and Clinton Cards and Irish fashion retailer Extrovert.

One retail estate agent suggested yesterday that once Arnotts owns the freehold of the block of four shops, it will eventually want to incorporate them into the department store.

However, this can only be done with the approval of the four high profile tenants who have long leases on the premises. Japan, one of the two buildings separating these stores from Arnotts, was recently bought by the pension fund of the Construction Industry Federation.

The second store, occupied by Eircom, may already be owned by Arnotts.

Arnotts was a surprise buyer of the four shops which are currently producing a rent roll of €1,365,000. The initial yield is expected to be no more than 2.25 per cent - a new benchmark return on either Henry Street or Grafton Street.

However, the equivalent yield is likely to be at least 3 per cent. The sale of the Japan store for €8 million showed an equivalent yield of 3.25 per cent.

Zone A rents on Henry Street stand at around €4,305 per sq m (€400 per sq ft), a long way behind the new figure of €6,201 (€575 per sq ft) recently recorded on Grafton Street.

Some retail specialists argue that the differential between the two streets is changing because of the ever-increasing strength of Henry Street as a shopping destination.

While a huge proportion of pedestrians on Grafton Street merely use it to get to adjoining places, some experts contend that those going to Henry Street and Mary Street are generally serious shoppers.

The ever-increasing success of Arnotts and the opening shortly of the redeveloped Roches Stores with Zara and other concessionaires in situ is expected to put Henry Street well ahead of Grafton Street in the run up to Christmas.