| Demand for retailing space up |
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| As the economy and consumer spending continue to grow, demand for prime retailing locations is underpinned, and is not likely to be undermined by internet retailing, writes Fintan Tierney. |
There has been much hype, media speculation and comment generally regarding the retail property market in Ireland over the last 4 years. With average economic growth at 8.5% and consumer spending at 7.5% we must ask what does all this mean for the retail environment in Ireland, its effect on the retail property market, and within this, what are the opportunities for investors interested in acquiring retail property?
Retailing now
The strong economy has brought significant gains to retailers throughout Ireland. However, success of the Irish economy and the strength at which it is growing is not without its problems.
Recent increases in the level of inflation to a 10 year high will result in retailers being reliant on even greater growth in sales. Many retailers are also coping with negative factors such as wage inflation, staff shortages, rising rents and for those UK multiples who have a presence in Ireland, the continued strength of sterling against euro. There continues to be strong demand for retail accommodation, most particularly in what the property industry classifies as prime locations. Multiple retailers looking at expansion in Ireland, whether they are from Ireland, Europe or the UK will all look at the country on a catchment by catchment basis.
Having assessed the number of catchment districts where they will wish to locate, the immediate preference is for representation in the prime pitch within that catchment area. For example, a retailer who decides they want to be located in Killarney in the prime district will immediately seek representation for any available opportunity of a suitable size but as near as possible to the junction of New Street and High Street which would be classified as Killarney’s prime pitch. The same is true for every town in the country with the premier location in Ireland being naturally in Dublin, as Grafton Street followed very closely by Henry Street.
In shopping centres, retailers will examine each opportunity on the basis of the location of the shopping centre, the catchment population for that shopping centre, the anchor tenant or tenants and other retailers located there. An example of this is Jervis Shopping Centre where Lambert Smith Hampton, acting on behalf of the landlord, acquired a leasehold interest on the upper mall of the Centre which was let a passing rent of IR?55,000 per annum and re-let this unit to another retailer, The Gadget Shop, at IR?85,000 per annum. This represents growth of approximately 54% over a period of less than 3 years representing an increase in return of 18% per annum!
Internet effects
There will be some effect but it will mainly be restricted to products and services that are suitable for sale by internet.
There still remain huge difficulties for any internet retailer in resolving the logistics of distribution. An extreme example in this regard would be whether a purchase for a small amount of say IR?5 made by somebody in Achill Island can justify a reliable distribution service and cost. The effect of the internet is being seen in certain retailing sectors, particularly the travel agency industry and the music industry. Retailers such as HMV, Golden Discs, Virgin, etc are all having to be extremely cautious in their growth plans because of the Internet.
However, many other retailers are only too willing and able to acquire any units that music retailers may be willing to sell. Many of these retailers include fashion who are always seeking prime located space. I do not believe that the internet will replace fashion shopping as it can not replace the social aspects of shopping or the need for those buying fashion to have what I call the ‘touchy feely’ benefits.
For the future I do not envisage any radical changes to the format of retailing in the country, which indeed will be the exact same world wide. In the shorter term however I do envisage difficulties for multiple retailers based in the UK due to the strength in sterling. Many have commented that, while sales and profit in Irish pounds are extremely good, when discounted back into sterling for their accounting purposes, they leave the returns from the operation in Ireland more marginal. However, there are many strong Irish retailers and more and more retailers who are mainland European based who have no such difficulty, such as Mango, Vero Moda, and so on.
Retail investor oportunities
This depends on the amount of money the investor has. Smaller amounts can be placed with institutional funds who have a large exposure to the retail property market.
For those who can acquire property directly, my first recommendation is always to acquire property in prime locations. It is highly unlikely that an individual investor will have sufficient resources to acquire any property currently on Grafton Street or Henry Street and we would encourage investors to seek opportunities in provincial towns and cities where blue chip retailers are always seeking opportunities. These opportunities may show low initial returns, e.g., 4% to 5%, but these returns will reflect likely rental and capital growth.
The retail property market is a secure investment both in the short and long term, and while there are many opportunities, investors should always seek those in prime locations. Most important of all, always take sound advice! |
Fintan Tierney is head of research at Lambert Smith Hampton, auctioneers.
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| Article appeared in the May 2000 issue.
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