Quarter 2 Activity
- Sale of 23 Shelbourne Road, Dublin 4 with a c.25% return on investment;
- Positive rent reviews in Ard Oran, Galway and 15 Duke Street, Dublin 2 resulting in rental and capital uplifts;
- Progression of redevelopment projects on time
and on budget.
- 41.5% Retail
- 9.5% Industrial
- 27.4% Office
- 12.3% Redevelopment
- 0.7% Other
- 8.5% Cash*
* Includes cash, assets and liabilities.
Quarter 2 Financial Highlights
- Over 75% of the property portfolio is held in core, income producing properties;
- Strong performance of 7.3% for 12 months to the end of Q2; the best performing unit linked Irish property fund over this period;
- Attractive income yield almost 5%.
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): €612.4m
Property portfolio size: €519.9m
Annual rental income: €28.4m
Initial income yield: 4.8%
Vacancy rate: 2.2%
WALT: 7 years
The Irish economy continues to grow at the fastest pace in Europe. Unemployment is now at 4.5% (CSO June), the lowest rate in 14 years and a driver of growth for the domestic economy. External challenges including Brexit, global trade wars and slowing global growth remain a concern. Brexit dialogue has escalated in recent weeks and the prospect of a ‘no deal’ has increased.
Despite the external challenges, the economy has remained robust which in turn has supported the commercial property market. Volumes exceeded €2bn for the first half of the year with more
than double that expected by year end (JLL).
Prime income yields have remained stable across retail (3.2%), office (4%), and industrial (5.2%) during quarter two 2019 (Lisney). The office sector was the best performing over the first quarter of the year and remained very strong during quarter two. The upcoming sale of Green REIT and Starwood with a number of interested parties will add to the years office transaction volumes.
Suburban areas such as Sandyford with good transport links and lower rents than the city centre are particularly in demand with rental increases evident. Prime Dublin retail remains resilient, with low vacancy levels. Retail sales increased by over 1% year on year to May 2019 and consumer sentiment was higher in May and June. Industrial Markets are performing well, a strong economy has resulted in several new occupiers entering the market and existing companies expanding. Prime office rents remain stable at c.€700 per sq m (€65 per sq ft). Prime retail is trading at €6,500 per sq m (€605 per sq ft). Prime Industrial rents are now at €106 per sq m (€9.85 per sq ft).
The 12 month rolling performance of the Fund to the end of quarter two was 7.3%, the best performing Irish unit linked property fund over this period. The Fund’s income profile is very attractive, with an initial income yield at the portfolio level of almost 5% and a weighted average lease term (if all break options are exercised) of almost seven years. The Top 10 Tenants (by rental level) account for over 50% of the rental income. These tenants are of exceptionally high standard (Woodies, Musgrave, Disney and the OPW for example).
Quarter two was a very active period for the Fund. At the end of the quarter, the sale of 23 Shelbourne Road, Dublin 4 took place with a significant return on investment of c.25%. In Royal Hibernian Way, the upgrade of the shopping mall is now complete, we are in final negotiations with a tenant for the letting of the second restaurant unit. Initial planning permission has been granted by Dublin City Council to redevelop ‘Block C’ off Duke Lane for office use, we await a ‘final grant’ decision. In Blackrock, Enterprise House redevelopment works continue at pace, the project is expected to complete later this year. The landlord fit-out is in advanced stages, lifts are in place, the façade of the building is also being worked on. Redevelopment works continue at Blackrock Shopping Centre. The upgrade will include the installation of bespoke glazed roof which is being manufacturing in the Netherlands in three parts. An additional storey of accommodation will be created resulting in an extra 11,000 sqft of mixed use space.
Trident House, Blackrock has been let in its entirety to Zurich since January 2019 and the tenant fit out is underway. Planning permission was submitted for reconfiguration works of 1 Coppinger Row restaurant and 57 South William Street (currently being used for ‘pop up’ shops, generating strong short term income) to expand the restaurant, kitchen and dining area into the basement of 57 South William Street. A planning application has been submitted to combine 54/55 South William Street into a restaurant unit. The upper floors of the two protected structures are intended as residential space, we are working with Dublin City Council ‘Living Cities Initiative’ which aims to enourage people to live in the city centre. A number of successful rent reviews were completed during the quarter including Cisco Systems, the tenant at Ard Oran, Galway and tenant Smash Lab at 15 Duke Street, Dublin 2. These resulted in rental and capital uplifts for the properties.
23 Shelbourne Road Dublin 4, Disposal.
At the end of quarter two 2019, the disposal of 23 Shelbourne Road, Dublin 4 was finalised in an off market disposal. In the strategy review undertaken at the start of the year, this property was recommended for divestment by the Friends First Property Fund Advisory Committee following the delivery of its ‘value add’ potential. The property spans five storeys measuring 26,800 sq ft and is located in the established commercial hub of Ballsbridge. It was acquired vacant in 2016 for approx. €18m and subsequently a number of asset management initiatives were carried out including extensive refurbishments of its common areas and letting the vacant space to strong covenent tenants.
The property was sold in late June for €25m (a return of c.25%) a great outcome for policyholders within the Fund. The sale is a good example of our ‘value add’ strategy in practice. We continue to analyse and source strategic investment opportunities for the Fund and will undertake disposals where appropriate.
Royal Hibernian Way, Redevelopment.
The Friends First Irish Commercial Property Fund completed the first phase of a high-quality refurbishment project on Royal Hibernian Way in Dublin 2, in early 2019. The large-scale project was driven by the Aviva Ireland property team who are responsible for all aspects of the overall fund management and the direct property management.
In the heart of Dublin’s city centre retail core with prominent frontage onto Dawson Street, this
development project has transformed the retail mall and revitalised an important pedestrian link to Grafton Street. The retail refurbishment included the amalgamation, conversion and change of use of existing retail units into two café/restaurant units and a stunning upgrade of shop fronts. A second planned phase incorporates the refurbishment of an office block to the rear of the scheme, with additional new space provided by extra storeys of accommodation and increasing the floor plate of the building. A planning application was lodged earlier this year and we recently received a planning grant from Dublin City Council. It is now with An Bord Pleanala for determination with a final decision due later this year.
In some tables and charts, due to rounding, the sum of the individual components may not exactly equal the stated totals.