Wednesday 21 March 2018

Better consumer spending helps retail improvement

Loans tied to Dundrum Town Centre sold for more than €1bn last year
Loans tied to Dundrum Town Centre sold for more than €1bn last year

Donal Buckley

The patchy nature of the Irish economic recovery is reflected in the latest retail sales figures which showed healthy growth in some sectors but declines in others. Nevertheless estate agents and property investors believe that the recovery seen in Dublin is beginning to ripple out to provincial shopping centres.

The CSO reports a 6.4pc increase in the volume of retail sales over the 12 months to the end of March 2016 when motor sales are excluded. During March the sectors with the largest month on month volume increases were Food, Beverages & Tobacco 2.1pc, Hardware, Paints & Glass 1.9pc and Other Retail Sales 3.5pc.

However decreases were seen in Department Stores down 4pc, Motor Trades 2.7pc and Electrical Goods 2.1pc.

Nevertheless Marie Hunt of CBRE says that the retail recovery that first began to materialise in the Dublin market last year "is now becoming increasingly evident in secondary and provincial locations, which is encouraging. However, much of the demand for locations outside of Dublin is emanating from a relatively small pool of retailers"

Reflecting the CSO figures which show food beverages and tobacco up 6pc over the 12 months, Ms Hunt reports that "for the first time in a long time, evidence of premiums and key money is now emerging in the restaurant sector."

Indeed some retailers are finding it difficult to get premises. "The biggest frustration in the Irish retail property market currently is a severe scarcity of stock in (those) shopping centres, high streets and retail parks that retailers are specifically targeting. The sheer length of time negotiations are taking is also frustrating, with landlords in general being more selective about the tenants and lease terms they are willing to accept now that the market is showing signs of recovery and the next phase of rent reviews is approaching."

In contrast to its traditional position of leading the property investment market, retail lagged both the offices and industrial sector in the 12 months to the end of March although it still showed very strong returns of 21.7pc. This is behind the 24.3pc shown by offices and the 23.8pc returns scored by industrials, according to the latest IPD/SCSI survey.

Taking encouragement from the economic trends, nevertheless retail narrowed the gap on a slowing office sector in the first three months of the year with a 1pc growth in retail income and a 2pc growth in retail capital values during the quarter.

While some employers may be concerned about increased wage demands, on the other hand the trend may encourage some landlords to expand their centres in order to cater for the expansion plans of retailers.

Among the retailers in expansion mode are: ladies fashion retailers Jigsaw, Mint Velvet and Mango; Unisex retailers TK Maxx, Hugo Boss, Cos, Vans, Levi's, Fly, Joules, Bugatti, Aeropostale, Calvin Klein and cosmetics chain Space Nk. Bulky goods chains such as Harvey Norman, The Range and Homestore & More are also continuing their expansions.

With major international companies such as Varde, Marathon, Hammerson, Blackstone, Hines and Kennedy Wilson acquiring Irish shopping centres, some observers feel that these firms would have access to plenty funds for upgrading or expansion of existing centres. However those smaller retailers who have yet to benefit from recovery will be concerned that any such upgrades will have to be funded out of increased service charges or rents.

Marie Hunt also reports that landlords in general have become "more selective about the tenants and lease terms they are willing to accept now that the market is showing signs of recovery and the next phase of rent reviews is approaching."

However those retailers in centres whose customers are predominantly local can argue that the patchy retail sales figures are a reflection of the uncertainty in the trades.

Such an argument will be more difficult for retailers in the key shopping centres located along the M50. These centres look set to benefit from the increased house building activity in the Greater Dublin Area.

This has already been seen in strong prices paid by Hammerson for Project Jewel which included Dundrum and The Pavilions Swords as well as in Blackstone's deal on Blanchardstown and more especially by Hines €26m extension of Liffey Valley. The latter will accommodate a major new Penneys store as well as six new restaurants as part of a 120,000 sq ft extension which is projected to increase the centre's footprint by over 16pc.

Research commissioned by Hines predicts that by 2020, Dublin's population will have grown by 12 pc and spend by 15pc above 2008 levels. Such a forecast should provide encourage Hines to develop its new town centre at Cherrywood which will combine 325,000 sq ft of retail space with office, leisure and residential.

DTZ Sherry FitzGerald and Savills are joint agents and site work could get underway towards the end of the year or in early 2017, with the retail and residential component lined up for completion by 2019.

Two other retail projects are in the pipeline for the county council area of Dun Laoghaire Rathdown. One of these projects is in Dun Laoghaire Shopping Centre where a €10m modernisation programme would include two anchor units.

The other in the southside suburb of Blackrock, is for a major expansion of Invesco's Frascati shopping centre which will increase its floor area from 10,239 sq m to 16,000 sq m. Plans also include parking for 556 cars.

Karl Stewart, retail director at DTZ Sherry FitzGerald, welcomes the development plans that are in the pipeline. "This contrasts to only a few years ago where landlords and indeed many retailers didn't want to even think about expansions."

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