Dundrum's five-year rent review is mixed bag

THE OWNERS of Dundrum Town Centre have had mixed success so far in the first round of rent reviews at Dublin’s premier shopping complex. About 100 of the 140 traders are facing rent increases under the first five-year review.

An independent arbitrator has disallowed rent increases for major anchor stores such as House of Fraser, Penneys and Marks & Spencer, but the first batch of medium- and standard-sized shops will be paying rent increases of 20 to 55 per cent either by agreement or as a result of the findings of an arbitrator.

Developer Joe O’Reilly had sought an uplift of 60 to 100 per cent in a number of instances, particularly where traders had been given substantial discounts in return for booking shops up to three years before the centre opened in 2005. The current management strategy is to have all traders, other than the anchor stores, paying a broadly similar rate for floor space, depending on the configuration of each store and its location in the centre. In a number of instances where agreement could not be reached on the new rent levels, the issue was referred to an independent arbitrator.

One arbitrator has now recommended that large anchor stores should not have to pay higher rents because of the absence of any evidence of rental growth for department stores in Dundrum or elsewhere. The effect of the ruling is that the House of Fraser will continue to pay a rent of € 3.4 million – the equivalent of € 258 per sq m/€24 per sq ft – for 13,191sq m (141,987sq ft).

In the case of Marks Spencer, the landlord had sought an increase of 25 per cent on the current rent of €2.5 million. However, the arbitrator ruled that the appropriate market rent should, in fact, be €2,475,000 for the 11,798sq m (126,992sq ft) store but given that the lease provided for upward only rent reviews, the passing rent will remain at €2.5 million.

Vodafone, which pays €300,000 annually for 176sq m (1,894sq ft), also got off scot-free. Even more surprisingly, Penneys were asked to pay only marginally more, €1.85 million instead of the outgoing rent of € 1.8 million for one of the best stores which extends to 4,645sq m (50,000sq ft).

Larry Brennan of Savills, who advises the owners of the centre, said the line-up of anchor tenants had not changed since the official opening in 2005 because they were all trading exceptionally well. It was always difficult to assemble evidence of rent increases for department stores because the majority of them throughout the country were owner-occupied rather than leased, he said.

It is a different matter altogether for medium- and standard-sized stores in Dundrum because of the continuing competition for these units from mainly overseas traders. Dundrum is continuously booked out and has a waiting list of traders wanting to move in.

That trend looks like continuing because the buoyant level of business in spite of the economic slowdown.

In another arbitration finding, fashion retailer Timberland had its rent increased by 43 per cent-from €245,000 to €350,000. The UK retailer occupies 371sq m (4,000sq ft) on level one.

Specsavers is also to pay 18 per cent more for its store of 157sq m (1,700sq ft), moving from €184,000 to €217,000 per annum.

In the case of A Wear, the rent increase will be 35 per cent – going from €385,434 to € 520,250 for a shop of 149sq m (1,604sq ft) and an even larger mezzanine. In this instance, the landlord had sought an increase of 66 per cent.

Meanwhile, fashion multiple French Connection took a different approach to the rent review, opting to negotiate directly with landlords agents and settling for an increase of 29 per cent which will see the rent rising from € 287,878 to € 372,500. The shop has a floor area of almost 130sq m (1,399sq ft).

Eason was one of the original traders who availed of the concessionary rental terms by booking their 7,432sq m (80,000sq ft) retail unit and a storage area three years before Dundrum opened for business. Although faced with a demand for a 50 per cent rent increase at this stage, the company struck a deal with the management to pay an extra 30 per cent. The new rent will be €728,000 as opposed to the old rate of € 560,000.

With fewer than 30 per cent of the rent reviews now settled, there is still much to play for with a number of the top traders undecided on whether to open negotiations with the management or refer the issue to an arbitrator. BT2, which pays €660,000 for one of the best located shops in the centre with a floor area of 1,114sq m/

12,000sq ft, has not yet signalled what approach it will take. The same applies to HM, Next and McDonald’s, who also operate out of larger than usual shops. Boots, on the other hand, has already initiated talks with the management.

There will be considerable interest too in the approach to be taken by the Inditex group which has no less than four stores in the centre. These are Massimo Dutti which pays €560,000 for 548sq m (5,900sq ft); Berska which has a rent bill of € 565,000 for 4,645sq m (5,000sq ft) and a large storage area; Pull Bear whose contract provides for a rent of €283,000 for 232sq m (2,500sq ft) and Zara which pays €600,000 for 1,644sq m (17,700sq ft) on two levels.

Dundrum is one of the very few shopping centres in the country in a position to seek a general increase in rents because of the pent-up demand for space even in the current recession and also because of the anomalies resulting from the concessionary rents offered before the centre opened and the substantially higher rents that now apply.

Even before the latest rent increases kick in, the Dundrum centre, including the former shopping centre on the opposite end of Dundrum village, is understood to be producing a rental income in the region of € 55 million. It is by far the most important asset under Nama’s control. Despite the widespread despondency about the retail trade in Ireland, Dundrum had a footfall of 19 million last year, most of them from the affluent south Dublin suburbs.

Des Byrne of Bannon and David Potter of Savills are handling the rent negotiations for the owners of Dundrum while George Saurin of Colliers acted for A Wear and French Connection; Dervla Gunne advised Penneys, Vodafone and Timberland; Fergus Cross of College Properties handled negotiations for Specsavers; Kathy Cruise of DTZ Sherry FitzGerald represented House of Fraser and Marks & Spencer, and Michael Coyle of HWBC was for Eason.