Former shining star now looking into a black hole

A YEAR INTO one of the worst recessions on record and Ireland's retail landscape is barely recognisable. Newly constructed shopping centres stand partially or entirely vacant, while high-profile schemes such as the €50 million CHQ building in Dublin's docklands face closure as consumer spending shows little sign of revival, writes GRETCHEN FRIEMANN

Just last autumn, Aldo, the Canadian shoe chain, forked out €650,000 for a lease on Grafton Street. There has not been a major letting on the thoroughfare since.

Today advertisements for “massive reverse premiums” elicit few responses, while empty premises and “to let” signs litter the capital’s premier shopping street as traders face into another frugal Christmas and the country awaits the latest hair shirt Budget.

The toll of business insolvencies has been devastating with Budget Travel’s collapse last Friday adding to a long line of high-street casualties which include the global coffee giant Starbucks and Principals. After less than four years of trading in the country the international brand is boarding up cafés and scaling back its operations.

Yet property experts point out the headline-grabbing doom and gloom stories are overshadowing patches of growth in the industry. Savills’ Larry Brennan claims next week’s unveiling of the popular UK Cult and Superdry brands in the former Habitat shop on Suffolk Street will “boost pre-Christmas trading in the city centre” and he says it underscores “the demand for large-scale retail space in the capital”.

Then there is the €600 million Opera Lane development in Cork city centre. HM, Gap, Next, Topshop, Boots, River Island and New Look have all snapped up space in the scheme, which is controlled by developer Owen O’Callaghan and IPUT (a tax-exempt property fund) and is now 80 per cent pre-let.

But as the recession bites, disputes between retailers and landlords are becoming increasingly acrimonious. Although property agents insist that landlords are reducing the rent for genuinely troubled traders, one industry body is threatening to “take militant action” against shopping centre managers who fail to introduce lower rents.

David Fitzsimons, chief executive of Retail Excellence Ireland (REI), argues tenants will soon “force the hand of landlords” and may “co-ordinate rent reductions among themselves”. He points out that a recent survey by REI shows just 13 per cent of landlords had agreed rent reductions at the end of August this year despite direct requests for them from 90 per cent of retailers.

And he claims his organisation has “discussed a temporary moratorium on rent increases with members of the Government”.

Fitzsimons also mentions the introduction by the Government of a ban on upward-only clauses in new leases.

Minister for Justice Dermot Ahern yesterday signed a an order banning upwardly-only rent review clauses under section 132 of the Land and Conveyancing Law Reform Act. He said the section would come into operation on February 28th, 2010.

Last month a Sunday newspaper reported that the measure had been put on ice by lawmakers after it was considered too controversial and was likely to impact negatively on the values of properties passing into Nama.

But one property expert dismisses the abolition of upward-only rent reviews as “counter-productive”, pointing out that it will “make existing leases less marketable” and create a two-tier investment market.

He adds that during the boom years many traders became “wealthy overnight” when they sold on expensive leases and claims that now the economy has turned “they want to have it both ways”. He also claims that abolishing upward-only rent reviews will “not solve retailers’ current problems” as the proposed change to the law applies to future leases and not to existing contracts.

Michael Harrington, a director with the agency, HWBC, points to the recent Jack Wills letting in the former Berry Bros wine shop off Grafton Street as evidence that landlords have adjusted their expectations. The upmarket UK menswear brand is paying a rent level that was agreed in 2004.

But elsewhere the signs are not so encouraging. Developers and tenants are winding up in court over contractual disagreements on schemes hatched during the boom. In Kilkenny, the newly completed €120m Ferrybank shopping centre remains mysteriously vacant. It is understood that Dunnes is contracted as the anchor tenant at the 6,968sq m (75,000sq ft) scheme owned by Deerland Construction Ltd, but Dunnes has yet to give any indication that it intends to move in.

The uncertainty surrounding the country’s stock of partially let, or partially constructed, schemes has led to a joke in property circles that some shopping centre sites may in the future feature “For Sale” signs which read: “Development land with agricultural potential”.