With only a trickle of investment properties coming on the market since the beginning of the year, agent CB Hamilton Osborne King is expecting considerable competition for a newly developed office building in Galway city which has been let to Hibernian Insurance.
A price of over €6.85 million is being sought for the 3,808 sq m building which is rented at €520,000 per annum. A sale at this price would provide a net yield of around 7 per cent.
In Dublin there is a pent-up demand for commercial investments but few signs that the supply is likely to pick up. The giant pension fund, IPFPUT, is one of only a small number of institutions offloading older stock.
The slowdown in transactions comes at a time when overall returns are static or, at best, growing only marginally. The last time the market showed zero returns was in 1992. It had seven exceptional years since then until 2001, when returns fell to 8.3 per cent. Neither the institutions nor the private investors have been tempted to capitalise on the strong prices currently available, largely because of the difficulty of finding more up-to-date replacements. The funds have been inactive for several months and, according to one investment specialist, will be tempted back only if they are offered prime retail investments. Office investments are of little interest unless they are well let.
Even with static returns, private investors are still competing strongly for the few available commercial properties. Many syndicates have switched their attention to the apartment market, buying blocks mainly in Dublin even though the high rents of recent years have tumbled somewhat since the supply increased.
This week's sale of a retail investment in Dublin's Wicklow Street at an initial yield of 4.2 per cent underlines the strong competition between private investors for well-located properties.
Colliers Jackson-Stops has agreed sale terms at €1.35 million for 26 Wicklow Street, which is let at €70,000 per year. When the rent is reviewed in two years, the yield should rise to about 6 per cent.
A private investor has also emerged as the top bidder for the IPFPUT's Roselawn Shopping Centre at Blanchardstown, Dublin 15. The investor is understood to have offered in excess of €9 million for the centre, which has a rent roll of almost €790,000.
This figure is expected to rise to over €960,000 when several rent reviews are completed in 2005.
CB Hamilton Osborne King contends that there is "excellent reversionary potential" for the Galway office investment, which is let at €136 per sq m. The overall rent of €520,600 includes payment for 137 car-parking spaces.
Though Hibernian Insurance has signed a 25-year lease, it has a break option in the 10th year. The block is located at Galway West, a multi-purpose 23-hectare park within 10 minutes' drive of the city centre. Superquinn is to anchor the retail element of the park, providing An Bord Pleanβla endorses a decision by the local planners granting permission for the supermarket.
