Making the best of hard times
Published: 25 August, 2011
The retail leasing market is showing signs of life despite Ireland’s economic woes.
The Republic of Ireland is now four years into an economic slump. Repeated austerity budgets have attempted to underpin the financial system but they have had a devastating affect on the Irish consumer. New research from CBRE points out that “consumer sentiment is still weak with retail sales having declined for 39 consecutive months and conditions remain challenging.”
CBRE uses footfall on Dublin’s twin prime shopping streets – Henry Street and Grafton Street – as a barometer of Irish consumers’ propensity to shop. Peak Saturday flows are running at about 11,200 per hour on Henry Street, down 10 per cent year-on-year and at 11,600 per hour on Grafton Street, down 4 per cent on 2010’s figures.
However, it may be that retailers have decided that austerity is the new normal and according to Larry Brennan, head of retail at Savills, leasing activity is continuing. “The good news is that we’re only seeing low single-digit falls in like-for-likes, and people can live with that. So the occupier market’s OK,” he says. “We’re seeing a reasonable number of lettings.”
As a result Savills is forecasting that Grafton Street will achieve near to full occupancy by the end of the year with the arrival of a number of new retailers.
New retailers to the central Dublin area have included Disney Store, Pandora, Skechers and Forever 21 and take up from new retailers has lead to a scarcity in supply, especially at the smaller end of the size range. This is leading some brands to consider locations that would once have been considered ‘off-pitch’. For example Abercrombie and Fitch will open on College Green later in 2011.
“The high levels of demand has led to a number of unsatisfied requirements,” says Brennan. But he warns: “While the improvement in occupancy levels is encouraging, it is still a tenants market and we do not predict a return to significant rental growth at this time.”
Savills research has found rents on new prime lettings have fallen by up to around 50 per cent to pre-boom levels, achieving €4,000 per sq m zone A pa on Grafton Street and €3,000 on Henry Street.
And two political factors are currently clouding the decision-making process for retailers. The new government came to power on a pledge to abolish upwards-only rent reviews but this has not yet been enacted. And equally the incoming administration has proposed rebasing all commercial rents to 2011 levels, in a bid to reduce the rent burden on occupiers, creating a new level playing field between businesses.
“With the Dail in recess we won’t hear anything until the Autumn,” says Brennan.
And he points out that this is having a paralysing effect on the investment market. “That market won’t come back until there’s debt finance available,” he says. “And who’s going to lend if there’s the potential for a rent decrease?
“The frustration is that there is buyer interest. We’ll see some property hitting the market in the Autumn, but will vendors accept what purchasers can afford to pay?” he asks.
One source of investment stock could be NAMA – the ‘bad bank’ set up by the Irish government to warehouse toxic loans. Until recently NAMA has consistently refused to confirm which borrowers or which properties are involved, although the list is widely believed to form a roll-call of Ireland’s top property names and some of the country’s highest-profile schemes.
However it has recently published a list of properties where it is now taking enforcement action against the borrowers. Inevitably it is a mixed bag of property types and locations across Ireland and the UK, but the list did include the Rushbrooke Centre at Cobh in Cork; Croughwell Town Centre at Croughwell in Galway; the Longford Shopping Centre at Longford; the M1 Retail Park at Drogheda in Louth; the Poppyfield Retail Park at Clonmel in Tipperary and the Arcadia Retail Park at Athlone in Westmeath.
Away from the Dublin market, Brennan says it’s discounters that are leading the way. Originally this was apparent in the food market but now brands like 99p Store and Poundland are expanding aggressively.
“We’re also seeing traditional Irish retailers like Pamela Scott taking advantage of the deals that are available,” he says.
One bellwether of the market is leasing progress at the Millfield Shopping Centre in Balbriggan, north of Dublin, which is one of very few new schemes to open this year. Millfield is anchored by one of the largest Tesco stores in Ireland, and it also features over 30 other retail units, plus a foodcourt with four restaurants, and getting on for half of these have been let to brands including Eason, Gamestop, Holland & Barrett, and Carphone Warehouse. Restaurants include O’Briens, BB’s Coffee & Muffins, and Graham O’Sullivan.
Savills is joint letting agent with Jones Lang LaSalle and Brennan says Bestseller has agreed to take several stores, and Boots has signed.
Progress on Millfield could give confidence to other developers sitting on mothballed centres. For instance there are rumours of movement at the Ferrybank shopping centre in Waterford.
But more concrete progress can be reported at Point Village in Dublin’s docklands. The developer has now settled its legal dispute with anchor tenant Dunnes, although fitting-out has yet to commence on the store. Meanwhile a six-screen multiplex has been signed to beef up the leisure offer.
But as for new development activity, CBRE’s latest retail bulletin is blunt: “Unsurprisingly, there is virtually no new retail development coming on stream at present,” it observes. And as the slump grinds on inexorably, nobody’s taking bets on when that situation will change.
