The value in considering a mixed-use investment

One of the most common queries we get at Onate is about mixed-use investments and their advantages. Mixed-Use investments have always been popular investment options for investors in Ireland. The value of the mixed-use investment market last year was €609m with 115 transactions carried out. That’s according to QRE Real Estate Advisors, who have carried out a detailed analysis of the last five years in their recent Investment Market Report.

However, in recent years, negative commentary on the difficulties that retail is facing have impacted marketability, particularly for mixed use investments that are retail-led.

Demand for retail

The reality on the ground in terms of retail demand, is that there remains excellent demand from retailers in both City Centre and Suburban locations. Grafton Street has witnessed a significant reduction in rental value but QRE confirmed that they continue to see excellent demand from retailers in mixed use suburban locations. Areas such as Clontarf, Malahide, Dalkey, Monkstown, Rathmines and Blackrock have extremely low vacancy rates in retail buildings and when one does become vacant there is generally excellent demand.

Rental values have remained resilient. Typical leases will be for a period of 10 years but occupiers are looking for flexibility and five year breaks are now more common in Ireland. Convenience and necessity retail held up extremely well during Covid 19 and QRE regard this as an excellent investment class with good quality office or residential overhead.    

Advice for investors

The basic fundamentals of any investment must be met when considering a purchase. While the investor is buying a physical asset, this should be surveyed to ensure structural integrity, but the reality is that it is the strength of the tenant and the lease that is in place are arguably the most important factors of this kind of investment. The key lease obligations to analyse in great detail are the repairing obligations of the tenant, the yield up provisions and the rent review provisions.

The drafting of these clauses can be critical and will impact significantly on the value of any investment. The strength of the tenant and its business is also a critical factor. The certain ability to pay the annual rent will put downward pressure on yield, due to the reduction in risk. Obviously the passing rent is critically important.

An investment that is over rented should be analysed accordingly, as with the advent of upwards and downwards rent reviews since 2009, there is a chance that rental values could recede. Similarly if a property is significantly under rented, there is obvious scope to enhance rents at the next rent review, which should also be factored into the price paid.

 Market overview

Private Rented Sector (PRS) and Residential was the dominant asset class in 2021 accounting for almost 30% of all spend. This was followed by Office and Industrial at 23% and 17.6% of the market respectively. Retail accounted for 15% of all investment spend in 2021.

Mixed-Use investments accounted for 10.7% of all spend in the Sub €20m sector, which equated to approximately €65m of assets traded in this sector with an average lot size of €3.1m. In 2017, there were 43 transactions in this sector which had a value of €199m and an average lot size of €4.62m.  

At Onate, we work closely with investors to help complete mixed-use purchases.

Our decision making happens entirely in-house, meaning we move quickly and provide certainty. We’ve completed loan drawdowns in just seven days, and regularly close transactions in two to three weeks. Our loan appetite ranges from €250k to €4m, secured by a first legal mortgage charge. We have a minimum interest period of just 90 days, redemption thereafter does not incur exit fees.

Whether it’s loans for debt settlements, equity release, residential auction purchase, Pre ’63 residential, social housing or borrowers who have a complex credit history, we provide fast and flexible finance for a term of up to two years. We also provide bridging finance on sites with planning permission for primarily residential developments. We lend up to 75% loan-to-value based on property type and location and we can lend nationally.

This article has been written in collaboration with Conor Whelan, Managing Director of QRE Real Estate Advisors