Prime retail rent rising, research shows

Prime high street rents in the retail sector are growing strongly and regional activity is beginning to pick up, new research finds.

Although consultancy firm Savills Ireland says the growth in retail sales is a factor in the recovery of retail rents, it said job creation has a bigger bearing on the market.

Citing research undertaken with the Economic and Social Research Institute, Savills Ireland economist John McCartney said jobs growth in the last 18 years was the “single most important factor” behind consumer demand and – ultimately – retail rents

“A 1 per cent increase in jobs growth brings about a 0.85% rise in rental growth 15 months later,” said Dr McCartney.

“Given that the ESRI is currently forecasting 50,000 additional jobs in 2015 and a further 55,000 next year, this clearly augurs well for strengthening growth in retail rents,” he added. “The research shows that consumer sentiment and interest rates also have a significant impact.

“Again, with sentiment hovering around nine-year highs and quantitative easing keeping interest rates in check, there is likely to be further upward pressure on baseline retail rents.”

Suburban shopping centres

Savills expects retail rents to rise most strongly in prime high street locations and “better” suburban shopping centres. Beyond that, however, the situation in the market was mixed.

While the return of competitive bidding in some regional centres points to future rental growth, Savills said certain schemes in remote regional locations remain under pressure.

“Current Zone A headline rents on Grafton Street are in the region of €5,600-€5,900 per square metre,” said Dr McCartney.

Rents are rising due to lack availability, with estimated rental values in Grafton Street rising 7.5 per cent in the year to March. “Reflecting improved trading conditions and the strength of demand, Savills believes they could reach €6,450 per sq m by the end of this year.”

Savills said no new lettings have been done on the street since transactions with Lifestyle Sports and Claire's Accessories in the fourth quarter of 2014. "However, the availability of the former Karen Millen unit and the two former O2 stores is set to change this. Indeed, we understand that one of the O2 units has already been agreed."

The firm also cited a rise in off-market transactions, one example being Next's assignment to Hugo Boss.

Savills’ head of commercial Larry Brennan said demand from local and international retailers in “stronger” regional towns and shopping centres has increased significantly in the last year. “This has led to a move from turnover rents to base rents, which is very a positive sign,” he said “However, in the more remote regional locations, it is a mixed picture with some schemes remaining under pressure.”

Deals in pipeline

While prime shopping centres were reporting increased footfall and sales, Savills said there have been “few” store openings in the first quarter. “In saying this, offers are being made, and we expect more deals to conclude in the coming months as negotiations with new tenants run their course.”

In addition, incoming investors in the retail park sector were seeking to implement asset management initiatives.