In one of the most significant investment sales of 2014, property advisors Knight Frank and Savills are to bring a portfolio of prime city centre office, retail and residential buildings to the market.
The Redwood Portfolio comprises some of the finest properties in the city, all of which are located in prime Dublin 2 addresses.
The portfolio offers a combination of long and medium-term income secured by strong international and Irish covenants.
With a total area of approximately 30,300 sq. m. (326,000 sq. ft.), an annual income stream of approximately €8.0 million and a weighted average unexpired lease term of 10.7 years, the sale provides investors with an opportunity to acquire a significant foothold in the Dublin market. Given the quality of the assets, the sale is likely to appeal to both existing international and domestic investors as well as attracting new entrants to the market. The guide price for the entire portfolio is €160 million, however investors will also have the option to bid for individual assets.
The office portfolio includes 2 Grand Canal Square; The Observatory on Sir John Rogerson’s Quay and One Clarendon Row. The retail and residential assets are located on Chatham Street and South King Street.
2 Grand Canal Square, designed by Daniel Libeskind, is one of Dublin’s most prestigious office buildings. The property occupies a high-profile site overlooking the Grand Canal basin and the Martha Schwartz designed Grand Canal Square. The property comprises a striking 8 storey over basement building providing approximately 14,000 sq.m. (150,000 sq. ft.) of Grade A office space. A feature of the building is the full height atrium above a generous reception and lobby area with access from both Grand Canal Square and Macken Street. The reception features a ‘Wall of Letters”, a dramatic seven storey feature portraying a passage from Joyce’s Finnegan’s Wake.
Capita Financial Services occupy approximately 52,000 sq.ft in the building whilst William Fry Solicitors, who are due to take occupation at the beginning of October 2014, will occupy a further 93,000 sq.ft. The investment will produce an income of approximately €4.44 million per annum with potential for further uplift when the remaining ground floor suites are let. As all the lettings are recent and reflect rents of only €29.00 per sq.ft, the investment offers superb rental and capital growth potential. The quoting price is €86.0 million equating to a net initial yield of approximately 5.0%.
The Observatory is a six storey waterfront office building providing over 8,000 sq. m. (86,500 sq. ft) of Grade A space and 1,200 sq. m. (13,000 sq. ft.) of live/work space set out in eight units and two retail units.
Occupiers in the building include the well-known financial service provider Morgan Stanley as well as online payment service provider Realex Payments. Lease negotiations are at an advanced stage with a new occupier to take approximately 4,119 sq.m. (44,337 sq. ft.) and once completed will leave only a small ground floor suite of 115 sq. m. (1,238 sq. ft.) unoccupied. This letting will bring the total rent roll up to approximately €2,169,500 per annum upon expiry of rent free periods.
The eight live/work units are located to the rear of the property fronting onto Windmill Lane. These units are laid out as two bedroom apartments with kitchen/living areas, bathrooms and a large office space. The units include fitted bathrooms and kitchens but otherwise are in shell condition. Subject to planning permission the units could provide spacious apartments in a very sought after location.
The quoting price for this asset is €40.0 million. This price reflects a yield of 5.50% on the office building.
One Clarendon Row/South King Street is located in the heart of Dublin’s retail and commercial central business district with Grafton Street a stone’s throw away. The property, which was developed by Chartered Land and designed by renowned architects A&D Wejchert, comprises a six storey over double basement mixed use building.
The office and retail accommodation extends to approximately 6,130 sq. m. (66,000 sq. ft.) and there is a one bed penthouse apartment extending to approximately 67 sq. m. (720 sq. ft.) also included in the sale. The building services and floor plan been designed to accommodate the further development of the block to incorporate the rear service yard and Chatham Court.
The upper floor offices are fully occupied with Hutchison 3G Ireland Limited occupying two and a half floors and Demand Media Europe operating from the remaining half floor. The retail, which fronts onto South King Street, is let on long term leases to Warehouse, H&M and Zara. As a separate Lot, a 10% interest in the retail element is being offered as part of the disposal. The total annual rent roll is in the order of €1.3 million and the agents are guiding €23.5 million equating to a net initial yield of approximately 5.3%.
Chatham Court is a prime located mixed use development immediately adjacent to One Clarendon Row. The property was originally developed in 1983 and there is obvious potential to redevelop Chatham Court in conjunction with the adjoining One Clarendon Row. Chatham Street enjoys a high-profile location within this prime Dublin City Centre shopping district linking Grafton Street to Clarendon Street.
The property consists of nine ground floor retail units of approximately 455 sq. m. (4,900 sq. ft.) and nine duplex apartments on the upper floors. 13 car parking spaces are provided at surface level to the rear of the development in the service yard shared with One Clarendon Row. The apartments comprise a single one bedroom apartment, one two bedroom apartment and seven three bedroom apartments.
Retail occupiers include The Steps of Rome, Pasta Fresca, Ladbrokes and Butlers Irish Chocolates. The investment produces a total income in the region of €534,000 per annum implying a net initial yield of approximately 5.0% based on the guide price of €10.5 million.
The initial return over the entire portfolio is approximately 5.0%. The pricing reflects the strengthening of the prime Dublin market, particularly in the office sector where there is potential for significant rental growth. Although the overall vacancy rate is 15%, the vacancy rate for Grade A offices in Dublin 2 is less than 4.00%, a level that has historically triggered significant growth in rents. Although the looming shortage in supply has prompted one developer to commence construction on Stephen’s Green, with two other substantial 2nd generation blocks to be refurbished, the pipeline for new supply is very limited.
The Redwood Portfolio is unique as it is the first portfolio of prime Dublin 2 located assets, with three of the schemes offering third generation office space at very reversionary rents. In addition to providing an attractive income yield for prime stock, there are a number of asset management and development opportunities (subject to planning permission) to further enhance value. It is expected to attract interest from investors across the globe due to the opportunity to acquire well-located assets with an occupancy rate of approximately 93% and average rent across the office portfolio of only €309 per sq.m (€28.68 per sq.ft.).