2009 was the worst year in living memory for the Irish retail property sector. Are there any signs of an improvement on the horizon for 2010?

Cormac Kennedy, executive director of retail at CBRE, sums up the malaise that engulfed the sector last year. “2009 was a very difficult year,” he says. “As the Irish economy experienced an unprecedented downturn and the rate of unemployment increased significantly to more than 12.5 per cent at the year-end, consumer spending was severely curtailed last year with most sectors of the Irish retail market suffering a significant downturn in sales.” And David Ringer, general manager for UK & Ireland at The Continuity Company concurs: “The retail market in Ireland continues to be immensely challenging,” he says. “The economic decline has exacerbated the already stretched household budget, with reduced disposable income negatively impacting on Irish retailers.” BCRE’s Kennedy charts the way consumers’ problems affected retailers and the property industry in turn: “Most retailers reported severe cash flow problems during 2009 and there were a number of high-profile casualties,” he says. “As vacancy rates in retail schemes around the country rose last year, rental values came under pressure, with prime retail rents declining by as much as 30 per cent from peak.” One location that appears to have bucked the trend is Dundrum, and centre director Don Nugent says footfall at the centre was up 6 per cent year-on-year and many retailers in the scheme actually grew sales over the year. One reason, according to Nugent, is the way the big British-based retailers like House of Fraser, Next, Marks & Spencer, Tesco and River Island aggressively cut their prices during the year to reflect the strength of the Euro against Sterling, with prices ending the year 12 to 15 per cent lower. “The Irish market really had to focus on value during 2009,” he says. Another winner has been Value Retail’s Kildare Village outlet scheme. Outlets traditionally perform well during a downturn, but with total sales up 11 per cent and footfall up 14 per cent year-on-year, the top stores in the scheme are now generating sales densities as high as €11,400 per sq m. According to Desirée Bollier, chief executive of Value Retail Management, this is approaching the levels seen in some of the top outlet centres across Europe. The centre saw nine new openings during 2009, and Bollier expects it to achieve full occupancy by the middle of 2010. But these are isolated examples. According to The Continuity Company’s Ringer, the domestic recession has been exacerbated by Irish shoppers’ willingness to cross the border, where the weakness of Sterling and the lower VAT rate created a price environment that the Republic’s retailers simply couldn’t match. He estimates 18 per cent of comparison spend leaked into the North. “Keeping spend in the Republic is the biggest issue,” he says. “For shopping centres this is even more acute, as they are arguably more vulnerable to cross border leakage than say their grocery counterparts, due to the considered nature of purchases made by their customers. “The nub of the problem is that shoppers of all demographics perceive that it is cheaper to drive a round trip in excess of two hours to shop across the border, to make a saving.” But it would be wrong to imagine that, because of this, everything is rosy in Northern Ireland. Osborne King director Colin Mathewson says “2009 was a challenging year for the shopping centre sector.” However, he says the market showed real signs of improvement during the latter stages of 2009 with a raft of lettings taking place and vacancy levels across the province decreasing significantly: “Although rental levels remained depressed and it is certainly still a tenant’s market, an increase in transactions is a healthy sign.” One factor that appealed to Northern shoppers as much as those in the Republic is discounting, and Mathewson says a feature of 2009 was the arrival in Northern Ireland of a number of value-driven brands. “During the year B & M Bargains, Poundland, Poundworld, Ethel Austin and T J Hughes all committed to new stores and have been received warmly by the consumer,” he says. The same emphasis on value has driven a strong performance at the Junction One outlet mall in Antrim, which has just signed Gap for a 6,000-sq ft unit which will be its second outlet store on the island of Ireland.

Centre manager Leona Barr says the scheme enjoyed a strong Christmas, with Marks & Spencer and Next achieving 25 per cent year-on-year sales uplifts. And Osborne King’s Mathewson highlights Westfield’s Castle Court in Belfast as a scheme that has outperformed in the full-price arena with Christmas footfall up four per cent year-on-year. Republic is taking the 10,000-sq ft former Zavvi store which trades over two levels on the prominent corner of Royal Avenue and Berry Street. Poundland is another major UK retailer that recently opened its first Northern Irish store at Castlecourt taking a 6,000-sq ft unit at the western end of the lower mall. “The single price point retailer will soon open their eighth store in the province and continues to expand aggressively.” says Mathewson. Other recent store openings at Castlecourt include Danish modular furniture retailer, Flexa; Orange; Yankee Candle; Teddy Mountain; Gems Jewellery and Costa Coffee which has taken a 1,500-sq ft kiosk on the upper mall outside Superdrug. Osborne King and JLL are joint letting agents at the scheme. So what of 2010? CBRE’s Kennedy does not expect a quick turnaround for the Republic’s retail market. “We expect to see further downward pressure on rents in various schemes around the country during 2010,” he warns. But he does detect a silver lining for some retailers: “2010 will offer retailers who want to enter the Irish market or expand operations here a unique window of opportunity to negotiate very favourable rents and terms and conditions on newer or larger units.” But in the North Osborne King’s Mathewson takes a brighter view. “The outlook for the shopping centre sector in Northern Ireland during 2010 appears positive, with increased tenant demand and lower vacancy levels now apparent.,” he says. “Although challenges remain for landlords in terms of rental levels and incentives required to secure tenants, the market appears to have mainly stabilised. While 2010 will still be a year of tenant opportunity, landlords are now regaining some ground,” he says.

Source : www.shopping-centre.co.uk, 01 March, 2010