Rents on Grafton Street may drop sharply following a court case which cut Burger King's rent by more than half, writes JACK FAGAN
FINANCIAL institutions and landlords who have seen the capital value of their shops on Dublin’s Grafton Street fall by around 50 per cent over the past three years now face the prospect of much reduced rents following an important test case in the courts.
The president of the Dublin Circuit Court, Mr Justice Deely, has set the rent of the Burger King fast food restaurant at 4/5 Grafton Street, Dublin 2, at €205,250 – a massive 53 per cent reduction on the €436,750 rent which applied under the previous lease.
The retail premises virtually opposite the AIB Bank branch is one of about half a dozen buildings on Grafton Street owned by the Aviva pension fund, which has the option of appealing last week’s ruling to the High Court.
If the Circuit Court decision stands, it could lead to a further diminution of capital values on the street. Rents on Grafton Street rose rapidly for most of the last decade mainly because of increased consumer spending during the economic boom and the large number of overseas traders looking to rent shops on the street.
The Burger King rent award will be closely monitored by landlords and tenants because it effectively brings the rent on this premises back almost to the level it was at in September 1999. The same building was rented in 1974 at €20,380 but within five years had risen to €46,980. Burger King, a franchisee controlled by the Irish-owned OKR Group, has been occupying the basement, ground and first floors of number 4 Grafton Street along with the first floor of number 5 under a 35-year lease which ran out on November 30th, 2009. The rent of €436,750 had been set in 2004 when most businesses on Grafton Street were thriving.
When Burger King recently indicated that it would be seeking a new lease from September 2009, Aviva gave its approval. However, the parties could not agree a new rent level and the issue was then referred to the Circuit Court.
During last weeks court hearing, valuers for Aviva and Burger King gave their respective opinions of the rental value of the restaurant and provided supporting evidence of other rental transactions on the street. The Lisney valuer who acted for Aviva suggested a rental valuation of €323,000 while College Properties’ expert sought a figure of €185,250 on behalf of the tenant.
Both commercial property agents were cross examined on their valuations. In the end the Judge set the rent at €205,250 from September 1st, 2009 and allowed Burger King to take a five-year lease with renewal rights at the end of that period. Any further dispute over the rental terms will be referred to the courts, though it can take up to 12 months for cases to be heard.
Senior figures in the commercial property market have expressed surprise that Aviva chose to allow the rental issue to be referred to the courts in the present difficult business climate.
The Burger King premises has a ground floor retail area of 72sq m (780sq ft), first floor retail of 115sq m (1,237sq ft) and basement stores of 68sq m (723sq ft).
Analysts may well disagree on the precise Zone A valuation emerging from the court ruling but one expert suggests that the figure may be as low as €3,078 per sq m (€286 per sq ft) compared with valuations in 2008 of €9,149 to €9,418 per sq m (€825 to €875 per sq ft) for shops around the same size on Grafton Street. In January 2008, Boots agreed a Zone A rent of €9,579 per sq m (€890 per sq ft) for its Grafton Street chemist’s shop.
The Burger King valuation is based on a rate of €322 per sq m (€30 per sq ft) for the first floor and €161 per sq m (€15 per sq ft) for the basement.
These figure may well disguise the fact that there are now two rent levels on Grafton Street – one for a handful of stores with extensive floorplates and the other for the large number of small shops which have become more difficult to let even at much reduced rents.
