Gretchen Friemann examines the rapid growth of retail parks and a proposed merger in the DIY business.
Developers are bombarding local county councils for planning permission to build out-of-town retail parks as the explosion in demand for DIY and home furnishing retailing shows little sign of slowing.
The scramble for market share between the major DIY chains is driving up rents in retail warehousing and enabling developers to realise massive profits on what are relatively quick and inexpensive schemes to construct.
Retail parks are also valuable sources of income for local county councils, as commercial rates are the only revenue over which they have full control. Now, after years of blocking this shopping format, local planners are approving these schemes in record numbers.
According to Michael Conroy, a director of retail with CB Richard Ellis Gunne, at least 92,903 sq m (1m sq ft) of retail warehousing has been constructed in the last five years and he predicts that figure will climb to 209,031 sq m (2.25m sq ft) within five years.
But while property experts claim the market for retail parks still has considerable room to grow, investors are warning that many developments are occurring in inappropriate locations where the population is too small to sustain such large-scale schemes.
Dundalk Retail Park is a case in point. One institutional investor described the 20,438 sq m (220,000 sq ft) scheme, which has been slow to fill and jointly anchored by Atlantic Homecare and the Australian bulky goods retailer, Harvey Norman, as "over-ambitious for a town of that size".
He said: "Although the park is in a high-profile position on a major motorway, it has not been attracting the crowds it deserves because there are major retailing offerings just over the Border in Newry. The population of Dundalk simply isn't big enough to create a market for this scale of retail warehousing."
However, Mark Reynolds of Hamilton Osborne King, which is marketing the scheme, denied any of the park's tenants had been affected by the delay in letting all the units and pointed out that the Atlantic Homecare store is considered one of the company's best performing outlets.
Mr Reynolds blamed restrictive planning for vacancies on the site but claimed it will be "near-full" within a couple of months as both a toy and a sports retailer had just received permission to trade from the park after previously being banned by the local county council. Two other tenants including UK multiple Carpetrite would be moving in shortly and this would leave only two units vacant.
Investors criticise the Dundalk park because it is considerably larger than most out-of-town developments, which typically extend to around 13,935 sq m (150,000 sq ft), and claim that it has failed to attract a critical mass of consumers.
However, the Dundalk situation is far from unique. The current craze for retail parks among developers and local county councils has led to many towns having two or more such schemes.
Naas, for example, had three retail warehousing developments recently approved for planning. Athlone already has a large retail park but another two are on the way, while Drogheda, which is just down the motorway from Dundalk, is set to have two major schemes on the north and south interchanges to be anchored by Woodies and Homebase respectively.
Even property experts question whether these developments can survive. Mr Conroy, who is the letting agent of the Monread Retail Park in Naas, which has planning permission for a full-size grocery store, said it was "inevitable that one of the schemes will suffer or lose out completely" from the intensity of competition.
The sudden spread of these sites in Naas has become a flashpoint for many in the local community who claim the town's councillors are facilitating developers rather than assessing retail proposals in the light of the current population and infrastructure base.
Ms Mary Glennon, an independent councillor for the town, said: "Developers have a great avenue for discussion with the planners in Naas and Kildare county councils whereas ordinary people don't. If they want to object they have to pay a fee and then file their objection to An Bord Pleanála."
She added that many people feel the new retail schemes are "not part of any single planning vision but ad hoc pandering to developer's demands". However, Mr Reynolds, who is letting agent for the Naas Newhall Retail Park, dismissed these arguments describing the current planning legislation as one of the strictest in western Europe.
He said: "Contrary to what some people believe, it takes an extraordinarily long time to get approval for these schemes and many more are rejected than approved."
So what is it that makes a successful retail park?
According to two institutional investors, the best schemes offer a good tenant mix and are located near major city centres, such as the Mahon Point Retail Park in Cork or the new €500 million Carrickmines development on the M50, which will be anchored by Woodies.
Traditionally, retail parks were stand-alone schemes, located off a major motorway. They consisted of one large-scale store occupied by a major DIY chain that was surrounded by smaller satellite outlets let to other bulky goods retailers.
These days, however, retail parks can be almost unrecognisable. Many of them are attached to massive shopping centres, as with the Blanchardstown and Liffey Valley schemes, or they offer some leisure element, such as a cinema complex, or are included as part of a mixed use development featuring an office park or hotel and conference centre.
Park Development's planned retail park off the Carrickmines intersection of the M50 will include not only units but a large office element, two hotels, a motor mall, a leisure centre, neighbourhood shopping and a conference centre.
But it's the retail warehousing element that is the most valuable. According to Jones Lang La Salle's Mr Stephen Murray, the 6,000 sq m (64,583 sq ft) Woodies store represents a huge boost to the development and will attract other retailers into the scheme.
He said: "Many people promise to build conference centres or hotels but, if you already have a major retail tenant, then there's a higher degree of certainty that the development will go ahead." By all accounts, there was little difficulty in anchoring The Park's (Carrickmines) retail warehousing scheme with Woodies' higher rent offer muscling out rival DIY chain B & Q.
Competition among the four top DIY retailers - Homebase, B & Q, Woodies and Atlantic Homecare - is propelling the growth of retail parks but both investors and property agents are concerned about the limited number of subsidiary retailers needed to fill the smaller units.
Mr Conroy said: "There are bulky goods retailers that will follow certain DIY anchor tenants but there is a limited supply of them and some agents are having difficulty filling schemes for that reason. Ultimately, though, it depends on location. If you're near a major population base and have good road access then subsidiary retailers shouldn't be a problem."
The Park is considered one of the most valuable commercial land banks in the Dublin area because of its location beside the M50 and its proximity to densely populated middle and upper class areas.
But two more retail parks are already in the pipeline in nearby Sandyford, with Treasury Holdings chasing B & Q as the anchor tenant on a scheme in the former Allegro site.
Meanwhile, Dún Laoghaire Rathdown County Council is deliberating whether to grant planning permission for a third retail park to be located in the former Microsoft campus.
One institutional investor said: "You have to question what sort of market there is for this amount of DIY outlets. All of them are relying on the M50 but as, we already know, its capacity is not limitless. I think it would be poor planning by Dún Laoghaire Rathdown council if all these schemes went ahead; they're just putting too much pressure on infrastructure."
Despite these misgivings, it's clear many investors regard retail parks as valuable assets with the potential to supply comparatively healthy yields. In fact, institutional investors are finding themselves squeezed out of these developments by syndicates of private investors.
Earlier this year Davy's private client property division, led by Mr David Goddard, bought out Grafton group's Navan retail park, which will be anchored by that company's DIY retailer, Woodies.
The group bought the former Navan Carpets site for around €10.5 million, underscoring the fierce demand among DIY chains for out-of-town retail schemes. Initial estimates indicated the 7.7-acre site would sell for between €4 million and €5 million.
Although Davy's has negotiated a deal to buy the retail park and sell it on to a family trust, its interest is entirely focused on the annual yield stream with ownership only transferring to the investors after Grafton has fully developed and let the site.
One investor described the deal as indicative of a "retail park bubble". He compared the dramatic spread of these schemes to the dot.com debacle at the end of the 1990s.
"If everybody's desperate to get in on the act, then you have to question whether it's a good investment."
He claimed the big problem with the Navan site was the traffic congestion between the town and Blanchardstown. Nonetheless, one, or possibly two, further retail parks are also planned for Navan.
"Maybe you're not going to see the retail parks get into trouble in the next 12 months but the pace of growth at the moment means there are bound to be schemes that will lose out and tenants who will refuse to pay the five-year upward rent reviews. And that's really going to burn investors."
He said retailers may point to half-full schemes like the Dundalk Retail Park as justification for unsustainable rental increases. However, property experts argue the current high employment levels together with the record 70,000 residential units projected to be built this year indicate the DIY boom has a long way to go before it begins to lose steam.
A recent industry report estimated the home improvement market to be worth up to €500 million a year.
Industry experts claim the consumer obsession with DIY is growing rather than contracting, prompting property agents to predict that retail parks will be a regular feature across most of the Republic's urban landscape.
