Contrary to many commentators’ expectations, the retail sector finally re-emerged in 2023 as a bright spot within the overall Irish commercial property market. This momentum has continued into 2024, with retail being the most traded asset class in the first three quarters, and making up more than 33 per cent of overall property activity so far this year.
Should the sale of Blanchardstown Shopping Centre close by year-end, we expect total retail property investment activity to top €1 billion in 2024, the highest level since 2016.
A total of €417 million has been spent on retail property in the year to date. Shopping centres account for the largest proportion, at 43 per cent of sales, with the next largest asset class being retail parks at 34 per cent. Only 20 per cent of the spend has been from Irish investors. The balance is made up of overseas buyers, with over half the non-Irish spend coming from our nearest neighbours in the UK.
It was yet another extremely active year in the occupier market with demand from new market entrants in addition to existing retailers expanding their store portfolios.
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Notable new overseas entrants include Alo Yoga (US), Kiko Milano (Italy), Phase Eight (UK), Swatch (Switzerland), Arket (Sweden), Subdued (Spain) and New Balance (US). Existing retailers opening further stores here include Space NK, Tommy Hilfiger and Mango.
Vacancy levels, which had reached unprecedented levels following Covid, continue to fall significantly, with many of the principal retail destinations operating at, or close to, full occupancy. As an example, we expect Grafton Street vacancy levels to have dropped to below 1 per cent in terms of overall floor area by year-end. The corresponding figure in 2021 was 10.6 per cent.
The retail market is like any other market, with supply and demand forces being an important dynamic in determining pricing.
We are certainly not oversupplied in terms of retail space, and it could be argued that there are real undersupply issues in many catchments and in some of the sub-sectors – prime shopping centre and retail parks being the most obvious examples. In the short to medium term, we don’t envisage any meaningful increase in retail supply.
Nor do we expect any reduction in retail occupier demand. If anything, it may be set to increase further, as more new brands seek to establish a presence here, and the incumbents continue to invest in and grow their store networks. Actual leasing activity may, however, decrease but this will be solely attributable to the shortage of available and/or vacant stock as opposed to any fall-off in demand.
Rental growth will remain a feature of the market, albeit we do not expect this to follow a sharp upward trajectory across all the retail subsectors. Instead, we see the main value accretion factors being longer lease-term-certain, a reduction in prevailing tenant incentives and further yield compression (still at relatively high historically levels). We see retail property remaining a compelling investment proposition, with any further interest rate cuts further increasing the attractiveness of this oft misunderstood and sometimes unloved asset class.
Eoin Feeney is head of retail with Colliers.
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