Investing in EuropeIrish property developer Newlyn Homes is to forward fund the refurbishment and purchase of an office block in the centre of Brussels at a cost of €21 million. The net initial yield will be 6.33 per cent.

Newlyn, whose directors include George McGarry, Christy Dowling and Robert Kehoe, is heavily involved in the Irish and Portugese residential markets and has a stake in the proposed new Bray Town Centre.

The newly acquired Royal Greenhouse office block is to undergo a full refurbishment and when completed it will have 5,189sq m (55,854sq ft) of office space over eight storeys and 702sq m (7,556sq ft) of retail accommodation at ground floor level.

There are 84 car-parking spaces in three basement levels.

Under the forward commitment entered into by Newlyn, the vendor will give a two-year rental guarantee on the entire space once it is ready for occupation in mid-2008.

The rental guarantee is for €200 per sq m (€18.58 per sq ft) and with prime rents in this location averaging €235 per sq m (€22 per sq ft)there is the likelihood of an uplift in the rent roll. If this happens, most of the additional benefit will go to Newlyn. The office vacancy rate in the area stands at 2.6 per cent.

Robert Kehoe of Newlyn Developments said the purchase price would reflect a gross initial yield of over 6.3 per cent off a very low base rent.

This was good value relative to other markets. The capital value on the office and retail space equated to about €319 per sq m (€29.64 per sq ft).

Though Brussels does not generally show double digit rental growth returns like central London, it is seen by many as a stable market with good long-term prospects.

Andrew Gunne of CB Richard Ellis, who advised Newlyn, says that as rents typically grow in line with inflation, the main driver of the return was the fact that Brussels was one of the only markets in Europe where the initial yield exceeded the total cost of the capital. The income return was extremely strong and Brussels was one market in Europe where you could still gear aggressively optimising equity returns.

"Once you can get comfortable with shorter lease terms and local market intricacies, I still believe there is good value and a very good case for putting the time and effort it takes to dig out investment opportunities on the Continent," he said.