The proposed sale of a prime Grafton St premises will test the strength of the investment market

A PRIME retail building on Dublin’s Grafton Street, rented by 02 and going for sale today, will test the strength of the investment market at a time when most banks have reduced lending to the property industry.

Joe Bohan of agents HWBC is quoting a guide price of €5.8 million for the investment, which will show an income return of 6.04 per cent after allowing for acquisition costs.

Property sales on Grafton Street have been few and far between over the past year, largely because of the banking turmoil and the slippage in capital values. The London researcher IPD recently calculated that the peak- to-trough fall in capital values on Grafton Street over a three-year period was 67.5 per cent .

The most significant disposal on the high street over the past year was the sale and leaseback of the AIB bank premises for €28 million, reflecting a yield of around 6 per cent. The investment was bought by a German fund, GLL, who were advised by HWBC.

The decision by FC REIT Asset Management to proceed with the sale of the O2 building at this stage may well signal that the upper end of the retail investment market has bottomed out after a prolonged period of uncertainty and slippage. Des Dennehy of FC REIT Asset Management said the decision to sell was part of an ongoing strategic rebalancing of the retail element of their portfolio.

The investment is likely to appeal to private investors rather than investment funds who generally concentrate on properties worth over €20 million.

One of the key attractions of the the building, apart from its prime location on Grafton Street, is the tenant, O2 , who are part of the multinational Telefonica Group. O2 in Ireland reported after-tax profits of over €178 million in the year ended December 2009.

O2’s 35-year lease from 1988 provides for five, yearly, upwards-only rent reviews and has another 13 years to run without any breaks.

Around the same time last year HWBC also sold the Boodles fashion store on Grafton Street for FC.

It made around €8 million, showing a return of 6.3 per cent. FC also owns the former Laura Ashley store on Grafton Street where the lease was recently sold to Disney for around €500,000.

FC is also in the final stage of negotiations to acquire Liffey Valley shopping centre in west Dublin for around €350 million.

The announcement of the sale coincides with ongoing negotiations by Green Property Company to acquire all 16 investment properties owned by Royal Liver Assurance Company. The portfolio includes 15 retail properties including McDonald’s fast food restaurant and four other shops on Grafton Street.

Although McDonald’s is currently producing rents of €1.4 million, the task of valuing it has been made more difficult by the fact that the lease is due to run out next year. A new ban on upwards-only rent reviews is expected to lead to a rent reduction under a new lease due to be sought by McDonald’s.