New yields benchmark may be set in Grafton Street

A new benchmark in investment yields may well be set in Dublin's Grafton Street next month when a family trust sells its freehold interest in a retail building occupied by Burger King. The Lisney agency is expected to secure about £2.75 million for the four-storey over basement building at 39 Grafton Street - a price that would provide an initial yield of just over 4 per cent. However, the yield will rise above 5 per cent when the next rent review takes place in July, 2001.

Although the existing 35-year lease only began on January 1st, 1996, there is already clear evidence that the building is underrented at £120,000 per annum. Burger King's Zone A rent of £150 per square foot is significantly below the £190 recently agreed for both Thorntons and McDonalds on the same street.

Many retail agents expect rents to harden further in Dublin's premier shopping street because of the continuing competition for outlets particularly from UK fashion multiples.

Ann Hargaden of Lisney anticipates that the Burger King building will be of interest not only to the financial institutions but to a range of private investors who are in a position to buy it.

The likelihood is that the investment will be acquired by one of the funds needing to strengthen the retail element of its property portfolio. Like everyone else, the institutions know that higher rents in Grafton Street generate capital growth.

Grafton Street is acknowledged as the safest bet in the Irish market because of the constant demand for shop units, even during a recession.

Although there has been downward pressure on yields in Grafton Street since 1994, only one sale since then dropped below the 5 per cent mark.

In May, 1995, UK fashion multiple Warehouse paid marginally over £2 million for the store it occupies at 37 Grafton Street at a rent of £112,000 per annum, the equivalent of £165 for Zone A. Druker Fanning, who handled the sale for Scottish Provident, calculated the yield at 4.9 per cent.

Three months earlier, the Investment Bank of Ireland paid £5 million for the Bewley's cafe at 78/79 Grafton Street in a deal which showed a return of 5.2 per cent.

In the autumn of 1994, a Dublin businessman bought the Pia Bang store at 46 Grafton Street for £1.7 million, representing a yield of 5.25 per cent.

Number 39 Grafton Street is let to the OKR Group which has exclusive rights to develop Burger King restaurants in Ireland. The annual figures for the company for the year ending December, 1995, show that its turnover increased by 22 per cent to £8.36 million.

The building has a total floor area of 5,408 square feet, including 3,581 at ground and basement levels. The three upper floors are used as offices by the OKR group.

Although the opening of the new Marks & Spencer store has not apparently generated the expected growth in shoppers in Grafton Street, traders say the market is buoyant.

Tenders for the Burger King building will close with Lisney on September 18th.