Although less than originally sought, the premium offered for the lease of the Nine West store has still taken many in the market by surprise, writes Gretchen Friemann
ALDO, A Canadian shoe and accessories retailer, is thought to have offered Nine West a premium of €650,000 for its lease on Grafton Street, which has been on the market since last March.
The rumoured figure, although lower than the €750,000 originally sought by selling agent Colliers Jackson-Stops, significantly exceeds market expectations as many in the industry had predicted the consumer slowdown would precipitate a hefty fall in premiums, even in prime city centre locations.
It is also understood the fashion multiple has agreed to a 77 per cent increase in the rent at 83 Grafton Street, lifting the annual rate to €636,000 from its previous level of €359,500 a year.
The deal, which has yet to be signed off by lawyers and requires landlord's consent, provides a welcome boost to Dublin's premier thoroughfare and follows the news earlier this month that one of the largest clothing manufacturers in the US, American Apparel, is to open its first Irish store at the bottom of Grafton Street in the former Permanent TSB building.
But it is Aldo's willingness to stump up substantial key money for the unit that has taken some in the industry by surprise. One senior property source described it as a "stunning figure in today's market" and said: "I really didn't think the appetite was there any more for those sorts of premiums." He also claimed the rental increase was a "super deal for the landlord".
The Nine West store, which is among six buildings on Grafton Street owned by the Irish Property Unit Trust, has a ground floor retail area that extends to 137sq m (1,475sq ft). There is additional storage space of 186sq m (2,004sq ft) in the basement as well as the first floor, while two other upper floors are currently unused.
According to well-placed sources, Nine West's exit from Grafton Street was prompted by the prospect of a steep rental increase at its upcoming review. Over the past few years rental values on the world's sixth most expensive thoroughfare have risen at a staggering pace and forced the closure of many indigenous traders.
At the start of this year, the rent on Bewley's Cafe was increased by 93 per cent - from €750,000 to around €1.475 million. And prior to that the upmarket American fashion chain, Tommy Hilfiger, agreed to pay a rent of around €1.68 million for a new store to open on the site of the former Grafton Arcade. Yet with the domestic economy in the teeth of what some fear may be a prolonged recession and the global banking crisis escalating at a dangerous rate, some are warning that Grafton Street will not remain unscathed for long.
Last summer a report by agent CBRE speculated that property values on the street had dropped by up to 50 per cent, and it recently emerged that developer Bernard McNamara abandoned the sale of his Zerep and Richard Alan shops because he failed to attract a satisfactory offer for either building. The construction magnate acquired the shops in an off-market transaction two years ago as part of a portfolio of properties that also included buildings at Clarendon Street.
Although the combined asking price for the two Grafton Street units was €42 million, which equates to a yield of 3 per cent based on upcoming rent reviews, it is understood bids on the property were pitched at yields of between 4 and 5 per cent.
But a number of agents have seized on the Aldo letting as evidence that demand for prime city centre locations remains strong and they argue that neither Grafton Street nor Henry Street will suffer a significant slowdown, despite the pain that is being felt in other segments of the market.
One retail source pointed out the high premium achieved by Nine West demonstrates that "even in difficult times" retailers are still "willing to forego a profit in their first year of trade if it means they can grab market share in a top location".
Aiden McDonnell, associate director of Colliers Jackson-Stops, is acting for Nine West. However, he declined to comment on the letting, citing reasons of confidentiality.
Aldo, which operates a store in Blanchardstown, is a privately held company based in Montreal. The group has over 840 retail stores across Canada, the United States, the United Kingdom and Ireland, and the brand is sold through franchisee operations in a further 35 countries.
