Riding the Irish roller-coaster
Published: 30 June, 2011
Ireland and Irish shopping centres have undergone remarkable times in the last 20 years and never more so than recently, writes Sean Kelly
What’s the capital of Ireland? “Oh, about 20 Euros.” And so goes one of the many jokes doing the rounds in the economically-ravaged Republic. What a difference two decades makes and the early 1990s now seem a lifetime away. The economy – then based on the Irish Punt – started to truly prosper thanks to a combination of tax and industrial policies, European Union funding and a healthy measure of Gaelic self-belief.
This was affirmed by Morgan Stanley analyst Kevin Gardiner when he gave the country its “Celtic Tiger” moniker in 1994. Between 1995 and 2007 GNP growth rates ran from 2 to 11 per cent and unemployment fell to around just 4 per cent. Ireland’s success story seemed unstoppable.
But it was a country that had begun to believe its own hype. A decade ago Shopping Centre’s own Irish feature headline “The Good Life” summed up the enthusiasm – though it did note that no one “would be surprised if there were to be the odd sign of nervousness that the bubble might be about to burst”.
By 2008 the ‘craic’ was well and truly over. Ireland was in the financial equivalent of cardiac arrest and now the nation feels like it has done ten rounds with a tiger. An IMF bailout of €85bn in late 2010 was contingent on the government reducing budgetary deficits to just 3 per cent by 2014. There has been a GDP contraction of 14 per cent with unemployment matching that percentage. Much has been made of the exodus of Irish youth with an estimated 52,000 reportedly departing over the past year.
The bad news has continued. In late April Ireland halved its anticipated growth forecasts to just 0.75 per cent for 2011. In May of 2011 Lloyds Bank predicted a further 10 per cent fall in Irish real estate values on top of the 60 per cent fall which Investment Property Databank estimates has already occurred in the past three years.
And, of course, two years ago nobody had heard of the name that is now on every property person’s lips: Gníomhaireacht Náisiúnta um Bainistíocht Sócmhainní or the National Asset Management Agency (NAMA). The so-called ‘Bad Bank’ has taken over some €77bn of loans by banks to property companies – though its actions attract criticism from some quarters.
Stephen Murray, European retail director of Jones Lang LaSalle, puts two decades of change in context by pointing out that in 1991 there was a total purpose-built shopping centre/retail park stock of 695,000 sq m for a population of 3.525m (197 sq m per 1,000 people). By 2011 the stock of shopping centre or retail park floorspace had risen by 482 per cent to 3,352,000 sq m. Applying the 2006 census population of 4.470m people it now equates to 750 sq m per 1,000 people. The shopping centre figure (excluding retail parks) is 440 sq m per 1,000 people meaning Ireland now ranks second highest in Europe in terms of shopping centre retail space per capita.
“In 1991 the market saw quite an active year with 88,477 sq m built,” says Murray who was a JLL letting agent back then handling the Omni shopping centre in Dublin and Eyre Square in Galway.
“Then lettings were not helped by Desert Storm in Iraq and 15 per cent mortgage interest rates. There was a much-warranted catch up with our European neighbours in the first decade after 1991. However, the extent of oversupply in specific areas – retail parks in particular and excessive planning permission grants – combined with easy funding, lack of in-depth demand analysis and substantial rental growth, has created a risky cocktail in the second decade.”
In 1991 as Shopping Centre was making its debut, Stephen Vernon, then managing partner of property adviser St Quentin in London, found his corporate gaze caught by the Emerald Isle. Within two years he would have crossed the Irish Sea and set up shop at Green Property with chairman Prof Michael J. MacCormac, who passed away in 2010. The two had plans for a shopping centre development on Dublin’s M50 ring road. Together they broke ground with Blanchardstown shopping centre in 1994 opening it in 1996.
Vernon never looked back – building a listed corporate entity before leading a management buyout for it in 2002. Today he is chairman of the company said to be worth an estimated £1.2bn.
“In 1995 everything began to take off and we had great growth despite some economic setbacks in 2001/2,” Vernon says now. “Then we had the real boom until 2007 when things really began to turn south. My take was always that it was never going to be a soft landing – that was never an option. What nobody could predict is that the downturn would coincide with such a huge global downturn that would effectively accentuate the problem. It’s the property boom that left the banking institutions crippled. It’s the on-going fiscal deficit that has brought the country to its knees.”
Larry Brennan was in the second year of his graduate contract with Hamilton Osborne King (as Savills was then) during 1991.
“The property market was a great deal smaller than now and work was varied across the office from selling warehouses to letting high street shops to showing houses at weekends,” he recalls.
“The retail development boom had really not kicked off. That said the beginnings were out there with early work progressing on Cruises Street in Limerick which was pioneered by Aidan O’Hogan, (my boss at the time), and also on a number of small shopping schemes in towns like Longford and Carlow.
“Aidan’s old Volvo 740 was almost a mobile office. He was a great man for the 6:30 am starts needed to beat the traffic. In those days there were no bypasses, let alone motorways, so a trip to Limerick meant a hop from traffic bottleneck to traffic bottleneck.”
open air centres
In 1992 Paul McGrath had just returned from five years working in the UK property market after graduating from college. He took up a job with developer Cosgrave in 2001 and as head of commercial property has driven forward projects including WestEnd, Ireland’s first shopping park adjacent to Blachardstown, and, among others, the Liberty Centre in Romford, UK.
“The development of Irish shopping centres from the early 1990s to now largely reflects the entire uplift in the economy,” he says. “In Dublin in 1991, shopping centres consisted of old-fashioned open schemes such as Stillorgan (built in the 1960s and largely unchanged today), and the old Dundrum, and a small number of covered schemes such as the ILAC Centre and Northside shopping centre.
“At that stage, shopping centres were generally anchored either by Dunnes Stores or by Penneys (Primark) alongside Quinnsworth (now of course owned and traded as Tesco),” he adds. “Stillorgan was Dunnes. Close by Dundrum was anchored by Quinnsworth and Penneys. Many centres were developed by the retailers or in partnership with the retailers and were therefore little more than anchors with a small open strip of non-competing offers,” he adds.
McGrath says that The Square Tallaght, opened in October 1990, was the industry head-turner.
“It was revolutionary in an Irish context,” he explains. “At that stage we had no Liffey Valley, Blanchardstown or, of course, Dundrum (completed in 2003) as it now exists. Tallaght’s anchors were Dunnes and Roches Stores – centres were still dominated by indigenous retailers. Blanchardstown (1996) and Liffey Valley (1998) were the first modern major centres that introduced the Irish shopping public to a broader range of UK brands.”
Savill’s Brennan recalls the early 1990s as “the start of the first wave of UK tenants” with the return of Next to the Irish market, River Island doing its first standalone deals following a positive experience in Arnotts and Boots and Argos on the prowl.
“The mega deal at the time was the sale of Brown Thomas to Marks & Spencer and the re-branding of the Switzers department store to BT’s,” Brennan says. “Hamilton Osborne King acted for M&S in the transaction. Other major milestones to my mind were Jervis shopping centre opening in 1996, Liffey Valley in 1998, Pavilions Swords in 2001, Dundrum and Mahon in Cork in 2005; Whitewater in Newbridge in 2006 and Victoria Square Belfast in March 2008.”
In 2001 the Irish Government tried capping large supermarkets at 3,000 sq m to create sustainable development. But maybe everyone lost sight of the bigger picture and as result the country became festooned with retail developments as the planning system came under considerable strain. Proposals meant jobs and income and so planning consents were given. It was suggested (only half jokingly) that there would be a million sq ft at every junction.
“Quite apart from the economic backdrop, the very nature of the shopping centre and retail business has fundamentally changed in the past 20 years,” says Michael Harrington, now pan Ireland head of retail for CB Richard Ellis. “Increased customer mobility and improved infrastructure has resulted in retailers trending towards fewer stores in larger centres to access more shoppers than ever.”
And the recovery may be further complicated by the Irish government’s on-going legislative push to end upward only rent reviews.
“I believe the government is making a mistake by trying to ban upwards only rent reviews not just in new leases but in existing leases,” Vernon says. “They (rents) are based on the fact that competition for retail space is between retailers and not between landlords and tenants. There is a lot of sympathy for retailers paying high rents at a time when their turnover is failing and many landlords are having to make concessions. In some cases we have agreed to help some of our tenants, but a government ban would backfire.”
overseas occupiers
JLL’s Murray points out that the arrival of UK, European and US occupiers helped fill most of the new stock with very low vacancy rates prevailing until late 2008.
“Today the better regional schemes have the fewest ‘dark’ units and quite interestingly some of the indigenous retailers of 20 years ago are starting to step into new temporary lets on vacated (but previously fitted out) outlets. In 2011 our JLL Index revealed that capital values had returned to late 1999 figures.”
“It certainly has been an eventful economic journey over these 20 years and although we are still dealing with the hangover, we are unquestionably better off as a nation in all sorts of ways,” adds CBRE’s Harrington. “Clearly the debt mountain that has been handed to NAMA to deal with is not going to go away any time soon but with some selective debt forgiveness there is hope that some of the legacy issues in the market can start to be unravelled.”
All Vernon will say about NAMA is that “there are a lot of questions about how things are working”. But while he sees the immediate future as “challenging” he says there should be optimism.
There is activity however. The Millfield centre in Balbriggan is the first major centre to open in more than two years. The 30-unit centre reportedly still has about one-third of its units available, though. Discounter Euro General Retail plans opening 12 units before September of 2011. Danish fashion retailer Bestseller intends 30 new stores in Ireland while Abercrombie & Fitch will open in Dublin in late 2011 –a year after its compatriate Forever 21 took a flagship store at Dublin’s Jervis Centre. Hollister is opening its first Irish store in Dundrum imminently, while Disney has opened a 4,750-sq ft store on Grafton Street, Dublin.
“Ireland will have a recovery – it’s just a question of when,” Vernon adds. “These things are cyclical and time deals with them. The bottom line is that Ireland has a favourable English-speaking demography with a high level of education. Foreign direct investment continues at a high level. It’s within the EU and there is a fantastic entrepreneurial spirit here and there have been infrastructure developments. There will be a recovery once we get over this historic debt mountain.”
