Our latest monthly Retail Pulse has now gone live. In this publication our retail leasing team recap on activity at the half year point of the year. Separately in our “Expert Insight” section Neil Bannon looks at two differing perspectives relating to the performance of instore vs online retail. The devil is always in the detail!
To view the full report, please click here.
The second quarter proved to be a challenging period for the Irish capital markets sector, with a total value of only €333 million invested. This marks the weakest performing quarter (and half year at sub €1 billion) in the last six years.
This lacklustre landscape can be attributed to three key factors: the end of “free money” as interest rates rise and inflation runs rife, the post-Covid impact of remote and hybrid working on office space demand, and concerns surrounding necessary capital expenditures for ESG (environmental, social and governance) retrofitting amidst rising construction costs.
However, after years in purgatory, it is the retail sector that has emerged as the star performer this quarter, accounting for 38.7 per cent of turnover. Although this performance is partly supported by the downturn in other sectors, there is no doubt that a significant perception shift has occurred, particularly in the retail park segment.
Notably, six retail parks have traded this quarter alone amounting to approximately €116 million including Liffey Valley B&Q, City East, Blackwater, Carlow, Newbridge and Waterford.
The most high-profile of these, Liffey Valley B&Q, which traded to French fund Inter-Gestion REIM for €26.6m, has thrown off a particularly strong equivalent yield in the mid to late 5 per cent range for an asset with a lease that has less than four years to run. This process saw participants such as Realty, Corum and Iroko compete for the asset.
So, what has driven this remarkable change in fortunes?
The “newfound” popularity of the retail sector can be attributed to a slow but building appreciation for what have been long-standing dynamics in both the supply and demand side of the sector. These dynamics differ considerably from the UK and US markets, where Irish retail investor sentiment used to originate.
Unsurprisingly, that core of the demand has shifted to both domestic family offices and a more central European focus where an appreciation for the fundamentals has shown through.
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Since 2011, when the last new shopping centre was completed in Ireland, there has been minimal net additional retail supply. This stands in stark contrast to the substantial expansion witnessed in the office, residential, and industrial sectors.
However, during this period, the number of people employed in Ireland has surged by 37 per cent, retail sales volumes have increased by 38 per cent, and Irish households’ net worth has reached new heights. These are all factors which feed the fundamental sustainability of the retail sector.
When considering the cumulative impact of debt reduction, increased savings, and rising house prices, Irish households are wealthier than ever before, with a net worth surpassing €1 trillion for the first time.
This surpasses the 2007 peak level of €716 billion, which was actually exceeded in the final quarter of 2017. Furthermore, Ireland’s gross debt-to-household income ratio has transitioned from over 200 per cent of the European average in 2011 to being below that European average today.
Combining these fundamentals with the historical correlation between inflation and the growth of retail rents and values, the renewed interest in the sector becomes apparent.
As highlighted by the turnover statistics, retail parks, in particular offer a compelling proposition. They benefit disproportionately from household growth and have proven resilient during economic downturns and the challenges posed by Covid-19.
Additionally, their ability to meet ESG requirements through initiatives like PV panels, rainwater collection, and other environmental measures adds value and attracts investors including new entrants. Similar attributes for high-street properties and grocery-led necessity retail are likely to see further interest in these sectors.
We expect to see numerous quality high-street trades in the third quarter and generally as the environmental benefits of the “centralised-distribution model” reflected by retail warehouses, shopping centres and Ireland’s key high streets becomes apparent.
We are seeing a complete return to pre-Covid footfalls for most the of the regional and necessity-focused schemes with Dublin’s two high streets hitting pre-Covid weekly footfall levels again for the first time last month.
As a consequence, we expect the sector to continue to outperform for the coming quarters with no less than seven shopping centres amounting to over €100 million in value due to trade within the next few weeks.
Rod Nowlan is an executive director at Bannon and heads up its office and capital markets team
The retail sector in Ireland is preparing for the country’s new Deposit Return Scheme (DRS). Starting from February 1, 2024, consumers will be required to pay a small deposit (15c/25c) on plastic and aluminium beverage containers, which they can reclaim by returning the empty containers to designated collection points.
The DRS represents a substantial step toward achieving a more sustainable future. In line with the Single Use Plastics Directive, Ireland must ensure the separate collection of 77% of plastic beverage bottles placed on the market by 2025, with a further increase to 90% by 2029.
Many of the collection points will be located in shopping centres. While the primary objective of this scheme is to reduce plastic waste and encourage recycling, shopping centres will experience notable impacts on their operations and customer behaviours. One immediate consequence of the DRS will be the need for shopping centres to accommodate the significant increase in the volume of recycling. To effectively handle this increase, shopping centres will need to assess their existing infrastructure and make necessary adjustments. Proper management and maintenance of these areas in collaboration with recycling partners will be crucial to ensure a smooth and streamlined process.
With just over six months remaining until the implementation of the DRS, the Bannon Property Management Team is observing larger retailers in the firm’s shopping centre portfolio making preparations for in-store returns. While these changes may require initial investments and adjustments, the implementation of the DRS is likely to bring about positive changes in consumer behaviour, including increased footfall. The introduction of the DRS creates an added incentive for consumers to visit shopping centres. This increased footfall can translate into higher customer traffic, benefiting not only the recycling depots but also other retailers within the shopping centre.
By embracing this transition, shopping centre owners can demonstrate their commitment to environmental responsibility, attract socially conscious customers, and contribute to a greener future.
With over 25% of Ireland’s shopping centres under Bannon’s management, the firm is highly focused on implementing best practices that promote sustainability and reduce environmental impact while enhancing the customer user experience. If you would like more information about the DRS or discuss implementing sustainable practices in your properties, contact the Bannon Property Management Team today.
Author: Alex Patterson, Director, Bannon
Date: 13th July 2023
Bannon’s latest monthly Retail Pulse has now gone live.
In this publication we look at retail occupier activity on Henry Street & O’Connell Street and Neil Bannon discusses the juxtaposition of the vacancies created by Debenhams failure in Ireland and the UK.
To view the full report, please click here.
It was super exciting to see Rituals open at Athlone Towncentre on Saturday. A great brand to further strengthen the Tenant mix.
For remaining leasing opportunities please get in contact with Jennifer Mulholland or Lorcan Keenan or our joints agents Cushman & Wakefield.
We are pleased to have negotiated a new long term lease with Lipstick Clothing in Nutgrove Shopping Centre. Lipstick first opened in Nutgrove in 1984, it’s wonderful to see a brand stand the test of time after 39 years showing both the strength of the Centre, the retailer and their partnership together.
For further leasing opportunities please get in contact with Jennifer Mulholland.
Fantastic to see the new Vila store now open at Athlone Town Centre.
It was a pleasure to work with our clients Alanis Capital to deliver this letting.
Further exciting new additions in the coming weeks and months ahead.
Bannon’s latest monthly Retail Pulse has now gone live. In this publication Neil Bannon shares some insights on what impact significant new housing supply will have on the retail sector.
To view the full report, please click here.
Some of our property management colleagues in attendance at the Shopping Centre Managers Association Ireland annual meeting this morning.
Bannon’s latest monthly Retail Pulse has now gone live.
In this publication Neil Bannon discusses the up to date retail sales figures recently published by the CSO and how Irish consumers continue to confound predictions.looks at the stark decrease in the household debt to income ratio and what this might mean for the retail sector
To view the full report, please click here.
