Retail landlords back on top as lease terms tighten
The improvement in the economy has seen retail sales improve steadily in recent months, but conversely, leasing terms for those retailers who are seeking prime pitches in which to sell their wares are toughening up.
Start-up entrepreneurs with a retailing bent may also have to look beyond prime pitches if they want to get into retailing.
Retail Ireland, the Ibec group that represents the sector, predicts that this year's Christmas could be the best that Irish retailers have seen in seven years as budget tax cuts could help raise consumer mood and boost spending.
Director of Retail Ireland Thomas Burke said: "The fortunes of Irish retailers are finally on the up.
He predicts core retail sales for December 2015 to reach €4.05 billion, up by 3.5pc over 2014.
"This new projection comes after a steady recovery over the year to date, following a torrid few crisis years.
Consumer confidence remains high and indications Budget 2016 has again put more money back into consumer pockets," he claims.
Even before the Budget estate agents were already forecasting that rents in prime pitches such as Grafton Street and the key Dublin shopping centres look set to increase thanks to strong growth in Dublin's population and employment.
John McCartney of Savills forecasts that Grafton St. retail rents could increase by 16.5pc by the end of 2016. Meanwhile CBRE is even more bullish for prime Dublin Zone A rents suggesting that after hitting a low of €4,000 per sq m in 2013 they could reach €6,303 by the end of next year and €7,233 per sq m by the end of 2018 - a rise of 45pc.
Those pre-budget forecasts were supported by retail sales figures and other economic data.
Dr McCartney says retail rents are particularly sensitive to employment and population growth. Ireland is experiencing the fastest rate of jobs growth in the EU and Dublin's population is now rising at its second fastest rate in history. These factors have re-ignited demand and this is driving competition between shopkeepers for the best retail units."
However landlords cannot take it for granted that all sectors of the retail market will recover and that all retailers can afford to pay higher rents.
Despite efforts in previous Budgets to encourage savers to spend, Irish consumers have been slow to respond as reflected in the billions of euros stashed in low interest bank accounts.
Consequently retailers have also had to cut prices to entice consumers as seen consistently in CSO figures.
For instance in the latest statistics for the 12 months to August, while volume of retail sales increased 7.6pc excluding motors, the actual value of retail sales increased by only 3.7pc.
The faster pace in volume sales bears out the point made by Declan Stone of Colliers who says "while retail sales volumes have increased strongly, the growth in the value of sales has been slower as competition between retailers has resulted in downward pressure on margins. Consumers are still cautious as Irish households continue to focus on paying down debt."
Intense competition was obvious in the food business as, in the three months June to August, CSO shows that while the sector saw a 3.6pc improvement in volume, in value terms food sales grew by only 1.9pc.
Yet in Dublin some of the most intense competition for retail space is among cafes and restaurants albeit this may be for secondary high footfall areas.
This sector also appears to be losing market share to pubs. Helped by a good tourist season, bar sales grew 6.6pc growth compared to the corresponding period of 2014.
Competition and upward pressure on rents is also driven by international retailers.
Larry Brennan of Savills says "we are seeing a strong push from the main multi-channel retailers to secure flagship locations in the main cities - Nespresso, H&M, Zara, Hugo Boss all being prime examples."
He also expects new international retailers to enter the Irish market from Europe in the near future and South Africa and Australian in the medium term.
On the prospects of e-tailer's opening stores he says "Yes. Again very much a trend in the UK with the likes of Yours, Jacomo and Simply Be taking stores. All these brands operate Irish on-line domains and we fully expect that they will also go down the "clicks and bricks" route in this market."
It will be interesting to see if Irish e-tailers who started their business in low rent, low profile industrial estate properties will now raise their profiles by opening retail outlets.
Some may venture with pop-up shops which offer lower financial risk as the term of the deal can be less than three months. Pop-ups also save on red-tape associated with starting a new business as the license fee covers local authority rates, insurance, planning requirements etc.
Better still if the shop is already fitted out and meets fire and other safety requirements this saves time and money and allows the retailer to hit the ground running.
However it's not always as simple as that as Johnny O'Connor of DTZ Sherry FitzGerald points out.
While space may be easier to come by in high vacancy shopping centres and retail parks, those pop-up shops which focus on Christmas gifts, decorations, calendars, books etc may not be permitted in the retail parks which are restricted to bulky good sales.
"Such pop-ups usually will prefer high footfall locations such as busy shopping centres or high streets as they only have a limited time to make their money."
"But increasingly shopping centre owners have refused offers from some of those pop-up operators if they were to compete with existing stores offering similar products," he adds.
So it looks like some e-tailers may have to consider a longer term commitment if they wish to raise their profiles and cash in on the Budget boost to consumer spending.