Two year-end deals have capped another strong performance in 1999, contributing to the longest running property boom this country has seen. A group of private investors has paid £75 million for Guild House, the last office block to be developed in the extension of the International Financial Services Centre in Dublin. The second transaction, which cannot be completed at this stage because of legal problems, involves the purchase by Irish Life of a giant retail warehousing complex at Liffey Valley mainly for British DIY chain, B & Q.
The sale of the 150,000 sq ft Guild House carried the prospects of valuable tax breaks for both the tenants and the private investors. The transaction has since lost some of its shine for the companies moving into the five-storey building because of a decision by the EU to restrict double rent allowances and a remission of rates to four years rather than the 10-year period which has been the norm up to now.
However, the consortium buying the block will still be able to offset 100 per cent of the capital costs against any rental income.
The developers, FBD Holdings, had agreed a rent level of £27.50 per sq ft with the tenants, which will include FBD Insurances and a German bank, but that figure may have to be revised following the intervention of Brussels. The group of investors will get a return of around 5 per cent on top of the significant tax breaks. Gunne Commercial and Jones Lang LaSalle are handling the deal.
Irish Life is to pay around £23 million for 100,000 sq ft of retail warehousing which is to be developed in Liffey Valley alongside the 170,000 sq ft already being funded by Eircom Superannuation Fund.
B & Q is understood to have agreed to pay around £13 per sq ft for the space, a rent that would give Irish Life a yield of 6.75 per cent on the deal. B & Q will probably have to settle for a unit of no more than 64,583 sq ft because of Government retail guidelines.
Ian French of Hamilton Osborne King, adviser to the developers, O'Callaghan Properties, said that while there were offers for the retail warehousing, a deal had not been completed.
Roderick Downer of Colliers Jackson-Stops, who acts for B & Q, had no comment.
Even without the Irish Life transaction, turnover in the investment market has already reached £700 million this year, £100 million more than in 1998. Once more, private investors and property companies were the dominant force, buying almost 68 per cent of the investments. Nevertheless, the institutions were considerably more active than in recent years, pre-funding a range of office and retail developments in the Dublin area.
In fact, almost 60 per cent of the entire investment market revolved around the office sector, largely because of the scarcity of space and the inevitability of further rent increases.
The strong performance by offices greatly helped to push the overall returns to 28 or 29 per cent this year.
Although the yearend figures will not match the 38 per cent growth recorded in 1998, it is still a particularly good result.
The six-year bull run by the commercial property market has mirrored the upturn in economic activity and the huge inward investment by foreign companies.
In this environment, it was hardly surprising that a new generation of high-income earners were able to acquire phenomenal wealth, which is now tied up in the property industry.
There will be no stopping now for these players and those unable to find suitable Irish properties will continue to divert their attention to the UK, where there are endless investment opportunities.
At home, the private investors will face increased competition because, with several hundred million pounds looking for a home in the Dublin property market, institutions have had to learn the hard way to move faster and more aggressively to ensure they get the prime investments.
The competition from the private sector will undoubtedly weaken over the coming year if interest rates continue to edge up while yields are dropping.
