Wednesday 25 April 2018

Boost for retail park investors as household goods sector thrives

Homebase store
Homebase store

Donal Buckley

BULKY goods retailers have seen strong growth in sales over the last 12 months, which augurs well for owners, investors and vendors of the beleaguered retail park market, some of which suffered badly in the recession.

Sales of furniture and lighting as well as electrical goods continued to increase in March and these are the type of bulky goods which are best-suited to retail parks.

The latest official figures show a 4.4pc increase in furniture and lighting sales in the month of March bringing to 18.4pc the growth in the volume of these types of goods over the previous 12 months.

In addition, the volume of electrical goods sales increased by 1.3pc in the month, bringing to 7.2pc the growth in the volume of these sales over the 12 months. While the DIY sector, the anchor stores of the most retail parks, suffered a drop in March, nevertheless over the 12 months these outlets have seen sales volume increase by 5.3pc.

Economists attribute this growth to the increased house buying activity as well as the pent-up demand among consumers for these products until last year.

The Government's carrot-and-stick approach has also been a key factor. Its carrot has been the tax credit for home improvements undertaken under the Home Renovation Incentive tax scheme. Its stick has been the increase in DIRT tax, which discourages saving and effectively encourages consumers to spend.

Recent research by DTZ Sherry FitzGerald shows that Dublin has as many as 25 retail parks of which only two, The Park in Carrickmines and Airside in Swords, are considered very large with more than 30,000 sq m of store space; three Dublin parks are considered large as each have floor areas of between 20,000 and 30,000 sq m. The other Dublin 20 parks are split evenly between medium ones of 10,000 to 20,000 sq m and smaller ones.

While this suggests that Dublin is well served with retail parks, some agents feel that there is scope for another one at Cherrywood on the south side, which is strategically located near the junction of the N11 and the M50.

However, Dun Laoghaire Rathdown County Council and Bord Pleanala ruled against it and a key concern was that it could exacerbate the drain of retail activity away from Dun Laoghaire town centre.

Galway appears to be under supplied in terms of retail parks compared to at least two other counties. The Connacht capital has only three medium parks and one small park whereas Wexford has six and Limerick has as many as seven of which one, Childers Road, is in the large category.

Karl Stewart of DTZ believes there is potential for a modern retail park with plentiful surface parking near Galway City. However, Galway lacks a readily identifiable site close to an existing shopping centre which would ensure its success.

While Cork has 10 retail parks, seven of those are less than 10,000 sq m. The other three are less than 20,000 sq m and are located on the northern, southern and eastern sides of the city.

One region of the country that appears well over supplied is the south east, stretching from South Tipperary to Carlow which has as many as 18 retail parks, five of them in Waterford where planners have also adopted a strict approach to confine retail park outlets to selling bulky goods in order to protect the retail core of the city centre.

But such a strict approach is one of the key challenges facing these park owners as well as investors who might consider buying any of the retail parks that are expected to come to market this year.

Those parks that are confined to bulky goods as a consequence are limited in the types of stores they can attract and so they are competing within a very small pool. This pool got even smaller following the closure of a number of major furniture chains in the fall-out from the collapse of the housing market.

This is reflected in the drop in rents. Savills estimates that average rents in parks fell 50pc since the peak but in some provincial parks, especially those in towns with over supply, rents may have fallen by 70pc and some of these parks still find it difficult to attract tenants.

But now with bulky good sales activity picking up, it's not surprising that some of the surviving furniture and electrical chains are beginning to open new stores.

Stewart also points out that some commentators who were sceptical about the future of the sector were surprised when three retail parks were sold last year as part of the Arc portfolio.

"There was good interest in the three and effectively they sold over their guide prices," he adds.

As Green Reit bought them as part of a large portfolio, there are no precise prices available for the parks' values. DTZ Sherry FitzGerald had guided €12.5m for one of them, Globe Retail Park, near Naas and €14m for Parkway Retail Park in Limerick. The third was The Arena in Tallaght which also accommodated other uses.

Hannah Dwyer of JLL says "rents vary significantly and depend on the size and location of the unit but are currently at €18-€20 per sq ft in key Dublin locations".

Gareth Shiells of Savills reckons that Dublin parks, such as those in Carrickmines, Blanchardstown and Airside are either fully or near fully let and are achieving rents of around €20 per sq ft. In some cases, where there are open and food uses, headline rents of close to €30 per sq ft are seen. However in provincial locations some can fall below €5 per sq ft.

Shiells now reckons that rents in the strongest parks close to the M50 motorway are firming up and he would not be surprised if they were to have recovered 30 to 50pc from their lows by the end of next year.

Increased house-building activity has lead to an increase in business for bulky good retailers such as HomeBase.

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