Property Update Summary
Quarter 1 Activity
- Demolition of Enterprise House in Blackrock underway
- Construction of the anchor restaurant unit in Royal Hibernian Way is close to completion
- Positive lease negotiations with a number of tenants in the Clarendon Collection
- 43.04 % Retail
- 9.87% Industrial
- 31.92% Office
- 2.40% Redevelopment
- 12.77% Cash*
* Includes cash, assets and liabilities.
Quarter 1 Financial Highlights
- Top ten tenants account for almost 60% of rental income
- Rent collection rate of 98% for Q1 2018
- Equivalent Yield of 5.60%
Lease Expiry Profile - % Net Rent
Based on scenario with all breaks exercised; excludes tenants on a rent free period.
Irish Commercial Property Fund Statistics
Overall fund size (includes cash): €537.3m
Property portfolio size: €434.8m
Annual rental income*: €24.3m
Initial income yield*: 5.00%
Equivalent yield*: 5.60%
Vacancy rate: 6.83%
WALT*: 7 Years and 10 months
*excluding rent free periods of less than 60 days
The performance of a property market is hugely dependent on economic fundamentals. The Irish economy continues to perform exceptionally well, with Gross Domestic Product growth coming in at 7.8% for 2017, ahead of expectations. The forecast for 2018 is 5%, the fastest pace in Europe. Unemployment is now 6%, down from almost 16% in 2012, and much lower than the European average of 8.5%. Expanding employment, wage growth, tax cuts (although relatively minor) and weak Consumer Price Index inflation are all boosting real income, which in turn, is driving the domestic economy.
These macro-economic indicators make Ireland a very attractive destination for international investors’ capital. Transaction volumes reached €930m for Quarter 1 2018, a very robust start to the year. Five large deals account for 67% of total transactions. Of the €930m, 63% was from international investors, 74% was invested in Dublin and 53% was deployed in the office sector (JLL). Large inflows from international investors shows a continued appetite for Irish property and despite recent stamp duty changes there has been no reportable difference of investment transactions in the market.
In terms of income yields on prime properties, Ireland continues to look attractive relative to our European counterparts, and provides an attractive spread relative to Government bonds. Prime yields remained stable across the retail (3.2%), office (4%) and industrial (5.5%) sectors (Lisney). Prime retail rents continue to appreciate, approaching €6,750 – €7,000 per square metre. Prime office rents are beginning to stabilise at circa €650 per square metre, ahead of levels from the previous peak. There are some deals being done close to €700 per square metre, but these are rare. Take-up continues to be very strong, particularly in the office and prime retail sectors. While 2017 saw a new record being set in Dublin office take-up, Quarter 1 2018 is up 69% on the same period last year. 47% of Quarter 1 take up was by Irish firms, 27% by U.S. and 12% by our UK neighbours. Demand is also very strong for logistics space, but there is a continued shortage of supply of larger, modern units.
The Fund’s income profile continues to be very attractive, with an initial income yield at the portfolio level of 5% and a weighted average lease term of almost eight years. The top 10 tenants (by rental level) account for almost 60% of the rental income. These tenants are of exceptionally high standard and underpin the quality of the Fund’s income stream.
The 12 month rolling performance (5.52%) has been somewhat muted. The main “drag” on the performance has been the three Blackrock Properties, which are at the beginning of their redevelopment cycles and preparatory costs (such as planning permission, design, architects fees etc.) have been incurred. However we expect that the redevelopment of these properties will add value and enhance the income profile of the Fund over the coming months and years.
We continue to actively source and analyse investment opportunities to identify appropriate properties for the Fund. At present, we are the preferred bidder on a mixed used investment in Galway, and two properties in Dublin 2 (with contracts exchanged on one). There have been a number of positive lease negotiations across both the Clarendon Collection and the Merrion Portfolio.
The demolition of Enterprise House in Blackrock is well underway, and upgrade works on the adjacent Shopping Centre and Trident House are due to commence shortly. The anchor restaurant for Royal Hibernian Way is close to completion. It is pre-let to a very exciting restaurant offering, Isabelle’s, by Press Up Group.
Enterprise House, Blackrock, Co Dublin
Enterprise House Blackrock is an existing 1980s office building which forms part of the Blackrock Shopping Centre complex in South Dublin. Friends First received planning permission in late 2016 to redevelop the building and more than double the size of the building. Following negotiations, the building is fully pre-let to Zurich Life Assurance Company.
Contractors have commenced demolition and redevelopment of the offices and construction is due for completion by Quarter 4 2019. The building is currently 32,600 square feet and following redevelopment the new offices will measure significantly more at approximately 74,000 square feet.
The high quality, well located office space will comprise of five floors above parking. During 2018 Friends First is also progressing the exciting upgrade of Blackrock Shopping Centre along with the refurbishment of Trident House offices. The overall Blackrock redevelopment project will improve the quality of our portfolio, creating value and income for the Fund.
The Globe Retail Park, Naas, Co. Kildare
Friends First acquired the Globe Retail Park in Naas, Co. Kildare in 2016. The Park can be accessed off Junction 9 of the M7 Motorway and is highly visible to passing traffic. Naas is the largest town in Kildare and is approximately 30 kilometres south west of Dublin City Centre.
The Park comprises nine retail warehousing units with a total area of over 143,000 square feet. It was acquired with one vacant unit and following a competitive tender process, the park is now fully let. In addition, planning permission was obtained to construct a coffee pod which is now trading as Costa Coffee. This has led to additional footfall and an increased rent roll in the park. These improvements repositioned the Park from a ‘value add’ asset to a ‘core’ income producing property. The park has a strong tenant mix including Woodies DIY (Grafton Group PLC) as the anchor tenant, Smyths Toys and Harry Corry.
The current yield is almost 7% with an impressive WALT of 9 years and 10 months. Recently there has been an improvement in occupier demand for retail parks from homeware and furniture retailers, which is linked to the volume of house building that is now underway and expected to escalate further over 2018.
In some tables and charts, due to rounding, the sum of the individual components may not exactly equal the stated totals.