With the economic backdrop changed, there will be keen interest in the outcome of the sale of the Richard Alan and Zerep shops on Grafton Street, writes Jack Fagan.
AN IMPORTANT test of the top end of the Dublin retail investment market is pending following a decision to offer for sale two separate buildings on Grafton Street.
Agent Savills HOK has circulated details of the investments to a small group of potential buyers but is not expected to advertise them on the open market because of the ongoing credit squeeze.
The estate agency is understood to be seeking around €30 million for the Richard Alan shop which has dual frontage on to Grafton Street and South King Street.
Also for sale is the adjoining Zerep building which is expected to make around €12 million.
Investments such as these have been snapped up in recent years by private investors accustomed to strong capital appreciation and equally good rental growth. The sizeable rent increases are still feeding through because of the pent up demand for trading positions on the street by overseas retailers.
However, the potential for continuing capital growth is no longer so assured because, with retail yields hovering around 3 per cent and borrowings now costing more that double that figure, investors need to be in a position to provide a cash injection to carry these investments in the longer term.
In recent years many Grafton Street properties have been bought by cash-rich housebuilders seeking to diversify their portfolios. Some of these players have gone on to buy high street retail stores in London, Paris and other European cities.
Last September, David Daly of Albany Homes paid €115 million for two retail investments on Grafton Street, the River Island store and the adjoining Wallis outlet. The deal will show a return of 2.4 per cent when the rent of both buildings are reviewed next year. The double-fronted River Island, regarded as one of the best buildings on the street, was sold by Arnotts while the building next door was owned for many years by Arnotts Pension Fund.
The Richard Alan store at 58 Grafton Street has one of the most unusual layouts on the street, including a valuable return on to 53/54 South King Street. For tenants there is the huge advantage of having to pay Grafton Street Zone A rents on only a small proportion of the floor area while the balance at the rear is priced at the lower rate appropriate to South King Street.
The shop has 278.7sq m (3,000sq ft) on the ground floor, the same retail space on the first floor, two floors of offices overhead and storage in the basement, all coming to over 929sq m (10,000sq ft).
The expectation is that the current rent of €723,000 will rise to over €1 million in 2010 when the investment will show a yield of around 3 per cent.
The Zerep store at 57 Grafton Street is considerably smaller at 214.5sq m (2,310sq ft) with 65sq m (700sq ft) of retail space on the ground floor and also overhead.
The current rent stands at €340,000 but, with a review due next year, it should rise to €450,000. At that level it would also provide a return of around 3 per cent.
