Two substantial office buildings rented by Facebook at Grand Canal Square in the south Dublin docklands are to be sold to Union Investment, the investment division of the German-based DZ Bank, for €232 million.
Union Investment, one of the most prestigious European funds, had to overcome stiff competition from Irish Life, Hines and JP Morgan for the office investment, which will show a net initial return of a little more than 4 per cent.
Numbers 4 and 5 Grand Canal Square along with a third block, Number 2, sold last July to Irish Life, were developed by Joe O’Reilly’s Chartered Land, which also holds a majority stake in Dundrum Town Centre. Nama is overseeing the sale of these and other assets held by Chartered Land. The strong price agreed by Union, as well as Irish Life, means that Nama will make a significant profit on all three buildings.
Decision to invest
Union’s decision to invest in the Dublin property market will be seen as a major breakthrough as it is known as a canny long-term investor with, typically, a 20-year horizon. The joint selling agents are JLL and CBRE.
Office investment yields generally ranged from 7 to 8 per cent for modern blocks when Nama began selling off distressed properties in 2012. Net returns have steadily fallen since then because of the high level of competition between overseas investors and Irish funds for the most recently developed blocks, particularly those with international tenants. Until now, Irish Life and IPUT Property, along with Green REIT and Hibernia REIT, have managed to buy up most office investments and sites in docklands. Union’s arrival on the scene could change that landscape.
Irish Life
Union’s decision to settle for a 4 per cent yield is broadly in line with the return agreed by Irish Life when it surprised the market last July by paying €121 million for 2 Grand Canal Square. That eight-storey block is rented at €312 per sq m (€29 per sq ft), already well below the recently reported end-of-year rental figure in the central business district of € 520 per sq m (€48 per sq ft).
Facebook rents both buildings under two separate leases, accommodating their European, Middle East and African headquarters and their largest presence outside the US. All three blocks were designed by Daniel Libeskind and were built to an exceptionally high standard. Number 4 extends to 11,417 sq m (122, 894 sq ft) and is let under a 15-year lease from January 2014 at a passing rent of €4.5 million per annum, equating to €376 per sq m (€35 per sq ft). The second block has a larger overall floor area.
