Pavilions deal sets the investment pace
Published: 10 November, 2006
The recent deal that saw the ownership of The Pavilions shopping centre in Swords, Co Dublin, change hands for E575m, was the biggest ever single property deal in Ireland. It has also set the pace for retail property investors wanting to put their money into shopping centre developments.
When the Swords centre was put up for sale earlier this year by the Eircom superannuation fund, there was ferocious competition, with property developer Joe O'Reilly pitched against seven other investment groups. Now that O'Reilly has completed the purchase for E575m, two of the largest institutional investors in Ireland have come on board as major investors. Bannon Commercial advised O'Reilly, while Hamilton Osborne King represented the two funds.
Between them, Irish Life and the Irish Property Unit Trust have paid about E240m for a 50 per cent interest in the shopping centre and in phase 2, the large extension that is now almost completed. Adding in what O'Reilly paid originally and what the two funds paid subsequently brought the value of the whole transaction to E815m.
These two funds will also have the option to buy into the third phase that's planned, which will include a town centre. When the whole development is completed, it will closely resemble Dundrum Town Centre - where Joe O'Reilly was the investment mastermind - in both scale and style.
The returns from The Pavilions are already healthy. The first phase, which includes 65 shops, is producing rents of E8m. The rents for the second phase are likely to bring in a further E5m at current level. But when all the rent reviews are completed before the end of this year, The Pavilions will be producing close to E20m a year in rental income.
At present, the centre has a weekly footfall of about 150,000, but when phase 2 is completed, bringing the centre to close on 44,000 sq m, it's expected those shopper numbers will be boosted significantly. Many international retailers now in Dundrum will be tempted to look at The Pavilions.
However, sources in the trade say that what Joe O'Reilly is really interested in is not so much phases 1 and 2, but the 2ha of development land that goes with the property. That land could provide the site for close to 100,000 sq m of retail, office and residential development. Much will depend on the attitude of Fingal County Council and An Bord Pleanala.
The deal over The Pavilions has elicited strong positive reactions. Marie Hunt of CBRE, Dublin, says that the whole development has a very bright future, as has the whole Swords area, with plenty of residential development potential still to be filled.
"Up to now, this area has been undersupplied with retail, but over the next couple of years, a lot is going to be happening," she says.
Apart from The Pavilions shopping centre, a new shopping centre at Balbriggan, in the north of this area, is due to open shortly. In Swords itself, the Airside retail park has developed strongly.
Tony Lambert, who is CEO of the Swords Fingal Chamber of Commerce, says: "The opportunities are obvious and this is reflected in the growth of retail in each part of Fingal."
Karl Stewart, head of retail at DTZ Sherry FitzGerald in Dublin, agrees: "Swords has the potential to become the Dundrum of north Dublin." He also says that the shopping centre investment market in Ireland has been quite active in recent years.
"Strong yields will remain going forward as there have been limited opportunities to buy into this market," he adds.
Stewart believes that investors will look increasingly at shopping centres because development and redevelopment plans will further enhance the product and provide much higher returns. Units could be amalgamated to cater for the changing nature of retail.
