- Following improvements in consumer sentiment in the first half of 2010, more recent data shows a weakened attitude.
- Both the volume and value of retail sales fell each month over the summer period.
- There is activity in the market place, albeit limited.In the list of most expensive global retail locations in terms of rent, Grafton Street has fallen from 8th to 13th position.
- Provincial towns and suburban Dublin shopping centres are beginning to experience an increase in letting activity.
- There are quite a few overseas retailers monitoring the Irish market and are keen to enter at the right level.
- Download Lisney Retail Update Autumn 2010
Sentiment
Following improvements in consumer sentiment in the first half of 2010, more recent data shows a weakened attitude. The KBC / ESRI consumer sentiment index dropped to 61.4 in August from 67.9 three months previous in June. While in part this may signify the end of the summer sales, holiday spending and back to school bills, it also shows that consumers remain cautious as regards the current buying climate. In spite of this, it should also be noted that on an annual basis, sentiment is well up from the low of 48.7 in August 2009.
Both the volume and value of retail sales fell each month during the summer period. In the 12-months to the end of July, the overall volume was down 0.1%. If motor trades are excluded it is down even further (-2.5%). The value of retail sales was 3.2% less in July 2010 when compared to the previous year with pharmaceutical, medical and cosmetics (-10.6%), department stores (-7.3%) and clothing footwear and textiles (-5.7%) showing significant declines.
Activity
There is activity in the retail market, albeit limited. The nature of transactions has changed inexorably with the dice heavily weighted in favour of the acquiring tenant. Leases are shorter, incentives are greater and turnover provisions are increasingly popular and accepted, even by institutional landlords.
Grafton Street
In the list of most expensive global retail locations in terms of rent, Grafton Street has fallen to 13th position, a drop of five places from last year when the street lay in 8th spot. With rents falling over 25% on the street in the 12 months to the end of June, we had anticipated a greater fall in its overall ranking. However the continuing decline in rents around Europe means that the relative fall in position was not as significant as expected.
The decline of Grafton Street is highlighted by the level of vacancy prevailing. At present, there are 11 shops available on either a 'To Let' or 'By Assignment' basis. There is activity on the street, albeit limited, and it appears that the majority of landlords are now focusing more on the quality of the covenant being offered than on the level of rent. We understand that two deals are agreed, which confirm this. 'Radley Bags' have reportedly taken a 15-year lease of 33 Grafton Street at a rent of €195,000 pa. This reflects a Zone A rate of approximately €3,660 psm (€340 psf). 35 Grafton Street has reportedly been agreed at a rent of approximately €210,000 pa.
Henry Street
On Henry Street, vacancy levels are much lower than Grafton Street but like Grafton Street, rental levels have fallen significantly. Two lettings completed recently that confirm this. UK retailer, 'Fat Face' has secured 45 Henry Street on a 15-year lease subject to a rent of €350,000 pa. This reflects a Zone A rate of approximately €3,230 psm (€300 psf). Lisney has also just let 4 Henry Street to US footwear retailer, 'Skechers'. Skechers is a new entrant to the Irish market and is due to open their flagship store on Henry Street in the coming weeks. They have taken the unit on a 15-year lease subject to a stepped rent over the first five years with a potential rental top-up based on turnover. The anticipated annual rent is in the order of €340,000, which reflects a Zone A rate of about €4,250 psm (€395 psf).
Suburban Shopping Centres
There has been increased activity in the suburban shopping centres. In Liffey Valley Shopping Centre, 'Republic' has taken a new 465 sqm (5,000 sqft) store at an annual rent equivalent to the higher of €500,000 or 9% of turnover net of VAT. In Blanchardstown Shopping Centre, 'Eircom' is opening a new mobile/broadband store and are paying €150,000 for 84 sqm (900 sqft).
Provincial Towns
The provincial towns are also beginning to experience an increase in letting activity with 'Bestseller', 'Carraig Donn', 'Holland & Barrett' and 'Fat Face' doing deals in selective locations throughout the country.
Retail parks
Retail parks have been particularly affected by the recession and vacancy levels have increased nationwide. In Dublin, rents have fallen from a high of €300 - €430 psm (€28 - €40 psf) to €108 - €215 psm (€10 - €20 psf).
There is very limited activity in this market with a small number of pet stores and furniture stores looking for opportunities. As a result, landlords are investigating the possibilities of getting planning permission to convert the bulky goods use to discount food and general open use. The discount food retailers continue to expand. Both 'Lidl' and 'Aldi' have completed a number of "subject-to-planning" deals recently and 'Iceland' has opened three stores in Dublin.
Other big box retailers with requirements include 'Decathlon', 'Best Buy' and 'Toys "R" Us'. These retailers are keen to secure prime sites and gain representation in the Republic of Ireland.
Outlook
In the short term, it is expected that retailers will continue to find trading difficult and with the ongoing banking crisis and the upcoming budget, there continues to be a lot of uncertainty in the marketplace. It is likely that more retailers will be forced to close. However, there are quite a few overseas retailers monitoring the Irish market and are keen to enter at the right levels. It is expected that they will benefit from very attractive terms.
Banks have stepped in to swap debt for equity, as was the case with Anglo Irish Bank and Arnotts. We believe this will be an increasingly familiar theme.
