Summary
- Consumer sentiment and spending have improved
- Market activity mixed
- Some retailer are consolidating and closing over-rented units
- Other retailers and availing of the flexible terms on offer and acquiring new properties
- A number of good lettings completed in Q2
- A number of quality retailer are looking for space
- Retail vacancy remains high, however Henry Street has held up better than Grafton Street
- Summer sales started early
- Some 'debt for equity' swaps have been reported
- Large proportion of rents are now turnover related
- Download Lisney Retail Update Summer 2010
Overview
The retail property market remained challenging in Q2 with economic and banking conditions having a major impact. Cost reduction remains uppermost on retailers' agendas and business consolidation continues to be a key trend in the market.
In spite of this, recent statistics and anecdotal evidence are showing some early signs of improvement. Both consumer sentiment and spending have improved, albeit from a very low base. CSO statistics illustrate that the volume and value of retail sales increased by 6% and 1.6% respectively in the 12 months to April 2010. The 1.6% increase in the value of sales is encouraging for retailers as it is the first year-on- year increase since February 2008.
Activity
Market activity is mixed. A number of retailers continue to close stores while others are opening new outlets and taking advantage of incentivised packages. Those consolidating are mainly closing over-rented units, while others are availing of the current climate to acquire new properties on very flexible and attractive terms. In particular, there are an increased number of new entrants to the Irish market who were previously deterred by occupational costs and inflexible lease terms.
In recent weeks, 'Reid Furniture' closed four of it's nine stores in Galway, Cork, Limerick and Sligo. The shoe retailer 'Faith' went into administration resulting in the closure of their 70 stores in the UK and Ireland.
On a more positive note, a number of good lettings have completed in Q2. The former Arnotts Project Store in Jervis Street Shopping Centre has been re-let to 'Forever 21' and 'New Look'. The combined new rent is reportedly greater than what was being paid by Arnotts prior to their surrender in Q1. Also in the Henry Street area, 'Fat Face' has taken a lease on the former 'Oasis' store.
There have been new entrants to the Irish market including the above mentioned 'Forever 21' and also the fashion brand 'Republic' who has opened it's first store in the Blanchardstown Shopping Centre. These new lettings suggest that confidence is beginning to return to the market place. This view is supported by the recent rescue of the bookshop chain 'Hughes & Hughes', who had been placed in receivership in February. The chain managed to negotiate revised lease terms on the majority of their stores and so a rescue was possible. All stores have now re-opened.
Another encouraging indicator is the fact that a number of freehold properties with vacant possession have sold in recent months. This is in stark contrast to 12 months previous.
Demand
Demand for good opportunities increased in Q2. There are currently a number of quality retailers such as 'Sketchers', 'Liverpool Football Club', 'Thomas Sabo' and 'Lipsy' who have requirements for stores in Dublin city centre and good suburban shopping centres. The majority of these retailers currently have no representation in Ireland. A number of established restaurateurs (e.g. 'Wagamama's' and 'Captain America's') are also considering opportunities throughout Dublin.
Vacancy
Retail vacancy remains high with certain areas more affected than others. A two-tier market has emerged for provincial shopping centres. Better centres have been able to attract new tenants while those that are more secondary in nature are struggling and a high vacancy level prevails.
In Dublin city centre, the prime retail core has been affected to different degrees. Henry Street has held up relatively well due to the physical configuration and more appropriate size of the units. Grafton Street on the other hand has suffered considerably. There are currently an unprecedented number of units available on the street, eleven of which are empty (or occupied under short-term lets). There are many reasons for this high vacancy. Primarily, the historic nature of the units whereby only a limited number have ground floor retail space in excess of 200 sqm poses major issues for retailers. Other constraints include the reduced tourist footfall and Dublin City Council's regulation of user types. Urgent action is required to address these issues and to encourage the revitalisation of the street.
Trends
In a bid to get shoppers spending and in turn boost turnover, many retailers have taken the unprecedented step of starting their traditional summer sales earlier in June.
In recent months, it has been reported that in some instances where retailers have been unable to repay their loans, their banks have swapped debt for equity. This 'Debt for 'Equity' swap is viewed by banks as a last resort, where possibly the outstanding debt will be salvaged over time. Therefore, banks have effectively become retailers and in the process have prevented a number of businesses from almost certain demise.
The increased number of lettings in Q2 has highlighted the changing face of the retail market. Lease lengths have reduced significantly and a large proportion of rents are now turnover related. An increasing number of landlords are prepared to give tenant only break options at regular intervals and incentives being offered can range from 6-months to 2-years depending on the nature of the transaction and the calibre of the covenant being offered.
