Thursday 18 July 2019

Paul McNeive: 'Coffee, tea or key? Food and beverages lead in retail'

The right moves

Paul McNeive
Paul McNeive

Paul McNeive

The retail market goes through phases when particular types of shops command premium rents, and generate large "key money" payments for existing leases.

For years, pharmacies were the star performer, and then it was phone shops. Now, with the general retail market struggling to adapt to the onslaught of online retailing, the food and beverage sector is the star attraction.

Ireland's young demographic, a worldwide trend for eating more meals outside the home, economic recovery and strong tourism numbers have combined to make restaurants the best performing sector in retailing. With growth in overall retail rents weak, the rental values of restaurant premises have soared, and some rent reviews are seeing increases of 100pc over five years. Certain streets and areas are becoming established as specialist 'restaurant/beverage locations' and the increases in rental values are most stark there.

Good examples of this are South Great George's Street and Camden Street in Dublin 2, which suffered badly in the recession, but have been reinvigorated by their food, beverage and hospitality offerings.

Rents in South Great George's Street have soared to an average of €1,000 psm, and when one restaurant premises came on the market, the agent received strong offers from 16 parties. Rents in the Dublin suburbs are in the region of €400-€500 psm.

One of the factors driving this is planning policy, and Dublin City planners have been restricting the ability to secure planning permission for the change of use from a standard retail premises to restaurant use.

The argument behind this is that city centres should have a mix of uses and that too much of one use will detract from overall footfall. The counter-argument is to let the market find its own level, and that it makes no sense to leave shops empty for long periods, when restaurant operators will pay good rents, plus rates to the city.

Planning policy has created something of a two-tier market, and, for example, on Dawson Street, Dublin 2, a premises with planning permission for a restaurant is worth 25pc more than one without.

The boom is just as strong for Dublin's suburban shopping centres - and locations including Dundrum, Liffey Valley, Blanchardstown and Swords Pavilions have added, or are adding, 'food courts' and allocating extra space for 'food and beverages'. The advantages are the ability to secure strong rents, and the bonus of adding footfall in a tough marketplace.

Another factor has been the arrival of new international restaurant brands here, and agents say that several more are in the market for space. The indigenous Irish operators have been "fighting their corner", reinventing, raising standards and expanding.

Regionally, among all of this, the avalanche of new coffee shops opening seems unending. Greystones, Co Wicklow, is a great example of a town that has maximised its position with a strong food and beverage offering, meaning there are now 36 businesses selling coffee on its streets. Nationally, most of the main brands, such as Costa Coffee, Insomnia, Caffè Nero, Bear Market Coffee and Starbucks, are continuing to expand.

Department stores, such as Penneys and Dunnes Stores, are seizing a slice of the market too, and are sub-letting space to specialist coffee shops.

A grey area has developed around the planning status of coffee shops, and many of them are opening in premises with an existing retail permission only. An untested view is developing that coffee shops - which predominantly use stools - don't need a specific-user planning permission, but restaurants - which predominantly use seats - do. Coffee shops are entirely appropriate in most locations, but their planning status should be clarified in a review of the planning and development regulations.

Given the number of restaurants and coffee shops opening, one wonders where the saturation level lies. Operators need to realise that the most important thing, more so than price or quality, is the friendliness of their staff.

You'll always go to your friends for food and drink.

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