Competition from German discount stores and growth of out-of-town shopping centres are some of the reasons why the retail sector enjoyed a busy year - and looks forward to further growth. Edel Morgan reports.
It was a year of new departures on the retail front. German discount retailers made a relentless bid for supermarket domination and out-of-town shopping emerged as the retail powerhouses.
There were also signs that the huge gap in rental values between Dublin's prime shopping streets north and south of the Liffey is beginning to close.
It was a year when retail remained the most buoyant commercial sector despite the blow dealt by a dip in consumer spending during the war in Iraq and access problems in Dublin city centre caused by Luas works.
However, the SCS/IPD index for September showed retail returns of 7.2 per cent - up 3 per cent on the previous quarter. Shopping centres performed best with a return of 10.2 per cent and all indications are that trend has continued in the current quarter.
"It's been a tough year at the tills for some but the actual market is showing strong demand, which is pushing rents higher," says Hugh Markey of Lisney. "The record rent negotiated with River Island on Grafton Street is evidence of this and is sure to drive the market upwards." (That rent - €13,751 per sq m (€1,275 per sq ft) - more than doubled the going rate on the street.)
Another record letting this year was to Clinton Cards on 19 Henry Street, Dublin 1, for €500,000 and in Cork, Clinton Cards set another benchmark rent at the corner of Patrick Street and Cook Street, with a rent of €508,000 per annum equating to a Zone A level of €4,273 per sq m (€397 per sq ft).
Major deals of the year included substantial lettings to Marks & Spencers in the forthcoming Red Mall extension to the Blanchardstown centre, where they will be paying over €1m for the 5,574 sq m (60,000 sq ft) outlet which will have a food section and department store.
The €250 million Dundrum Town Centre will have the largest Marks & Spencer outside of the UK and Ireland's only House of Frazer store as well as a 12-screen multiplex cinema, a theatre and social facilities. Zone A rents for the centre will be €3,000 per sq m (€278 per sq ft).
Grafton Street still reigns supreme in terms of rental levels achieved, with records set by the River Island deal and the letting of Thorntons chocolate shop by pension fund IPFPUT to 02 Communications at a rent of €6,201 per sq m (€576per sq ft) - which at the time was more than 25 per cent higher than current rental values on the street. The letting set a precedent for other tenants facing rent reviews. The previous benchmark rent stood at €4,920 sq m (€457 per sq ft) following the letting of fashion retailer Reiss over a year ago.
However Henry Street has been bolstered by the well-received revamp of Roches Stores to include Spanish fashion store Zara. With a good choice of shops stretching to Mary Street and encompassing the Jervis Street shopping centre, the northside is making rapid progress. The planned remodelling of the Ilac Centre will be the icing on the cake. Marie Hunt of CB Richard Ellis Gunne expects rents in the region of €7,000 per sq m (€650 per sq ft) likely on Henry Street by the end of 2004. "An obvious gap exists which shouldn't exist," says Larry Brennan of Hamilton Osborne King.
"Retailers at the value money end like Lidl, Aldi, Heatons and Penneys will continue to grow at a fast rate," predicts Hugh Markey of Lisney. "People didn't expect the extent of the phenomenon of the German discount supermarket and the signs are that the snobbish thing about shopping in them will wane. On the Continent it is common to see Porsches parked beside Polos at these supermarkets."
Larry Brennan says it is not only low cost supermarkets that will thrive in 2004, but discount fashion stores like Matalan and TK Maxx, which are looking for suitable sites in Ireland.
The real winners this year, says Larry Brennan, have been the out-of-town shopping centres. Rents in these shopping centres are on an upward trend, with rents in Blanchardstown Shopping Centre, for example, doubling after a recent review - but some occupiers may find themselves under pressure as these reviews filter through .
According to Marie Hunt "with little chance of obtaining suitable pitches on prime shopping streets, any of the new overseas occupiers will choose to locate in suburban Dublin shopping malls first and then expand to other provincial centres in time".
Much of the new retail space coming on stream is already let. The Mahon shopping centre in Cork, due for completion in 2005, is letting well, with the vast majority of units reserved or under offer with rents from about €2,000 per sq m (€185 per sq ft). Dundrum Town Centre, also due to open in spring 2005, is 80 per cent reserved, with rents of around €3,000 per sq m (€278 per sq ft).
Drogheda is on the threshold of a retail revolution, with the 69,677 sq m (750,000 sq ft) Scotch Hall - the largest mixed development outside Dundrum Town Centre, with 52 retail units and Dunnes Stores as anchor - under construction by Edward Holdings. Also in Drogheda, St Laurence Town Centre, being built by Parolen Ltd, is due for completion in 2004.
The €50 million Fairgreen shopping centre in Carlow has been let to tenants such as Tesco, Heatons, A Wear, Sasha, Vila and Pamela Scott, and a second phase is in the pipeline. The extension to Navan shopping centre is already fully reserved, say the handling agents. Monread Road in Naas, a €16 million development, is due for completion in 2005 by Hazelmark Developments.
Others coming on stream include the 2,366 sq m (25,475 sq ft) Ramparts shopping centre in Dundalk at the end of 2005, Quayside shopping centre in Sligo next October, White-water centre at Newbridge, Co Kildare, in 2006 and Manor Mills in Maynooth, Co Kildare, in summer 2005.
According to CB Richard Ellis Gunne, despite strong supply and demand, many secondary shopping centres both in Dublin and around the country "will come under ongoing pressure in the short to medium-term to improve their offer and undertake refurbishment to remain competitive.Small units in older centres in particular will continue to struggle."
Retail warehousing has had mixed success depending on location.
According to Larry Brennan, retail parks associated with shopping centres generally fared well while some of the regional parks were sluggish. "The top performers were off-motorway centres in Dublin," he says. Over 320,000 sq m (3,444,448 sq ft) of retail park is expected to become available over the next three years but CB Richard Ellis Gunne has urged retailers to exercise caution "in locations which do not have the demographic mass or profile to sustain such development".
As Swedish furniture giant IKEA waits in the wings for a Government decision on whether it will amend its retail planning guidelines, the Irish Hardware and Buildings Materials Association (IHBMA) issued a warning that it would be "a grave mistake to make ad hoc changes to suit the vested interests of one or two shed operators".
IKEA - which has a typical store size of 28,000 sq m (301,389 sq ft) in the UK - has said it will open in Ireland if the current cap for a single use retail warehouse of 6,000 sq m (64,583 sq ft) is lifted. B&Q, which has stores in Liffey Valley and Tallaght, is also looking to have the cap removed and has called the current retail guidelines "anti-competitive".
Some industry sources believe if the cap is lifted it will not necessarily open the floodgates for so-called "category killers" given our relatively small population.
The consensus for the retail market is that there will be gradual recovery next year,with inflationary pressures in the economy easing, promoting increased consumer confidence and retail sales activity. Christmas spending will be helped by the suspension of Luas works and free city centre parking although out-of-town centres are expected to continue to perform well dueto ease of access and late night shopping,
However if income tax bands are raised in line with inflation in the budget, resulting in fall in disposable income it may have implications for consumer spending in 2004.
