RETAIL MARKET:FOR YEARS Ireland's retail sector has consistently ranked as the star performer in the property industry but, with the country sinking deeper into recession, the market is bracing itself for rising vacancy rates and sluggish rental growth.
There has been little relief from the torrent of bad news in recent weeks. Latest figures from the CSO show a drop of 5.6 per cent in retail sales during the third quarter of this year, the largest decline since the second quarter of 1983 and in the past few days the deteriorating economy claimed its first high-street casualty as the Irish-owned women's fashion chain, Sasha, went into interim examinership. Other high-profile businesses are predicted to follow as consumers rein back on expenditure amid increasing unemployment levels and falling house prices.
And as the boom days of the Celtic Tiger fade swiftly out of view, there are mounting concerns the fast-paced development of that era has left many regions with an oversupply of retail space.
According to Hugh Markey of Lisney: "It is difficult to pinpoint a single area of the country that is suffering from a lack of modern retailing. Perhaps one could make a case for Wexford town but, in general, we have too many schemes that are too large for where they are."
He added that planners and developers had "lost the run of themselves" in recent years and argued those schemes constructed within the past three years would face "greater challenges than more established developments".
There has already been some evidence of these trading difficulties in Drogheda - a town widely regarded in the industry as being at risk of over-competition. Despite its comparatively small population of around 35,000, the area has three shopping centres and a fourth, the €100 million Southgate development at Grange Rath, is due to open later this month. It will mean the scheme's anchor, Dunnes, has four outlets in Drogheda while its rival, Tesco, will have three when its latest store on the Donore Road development opens next Monday.
But as the supermarkets slug it out for market share, developers are finding the once-profitable smaller units are becoming increasingly difficult to fill. It is understood generous rental terms are on offer for the remaining space at Southgate as occupier demand weakens under the harsher economic conditions.
Drogheda's ambitious developers are also struggling to retain existing retailers. Earlier this year, Topshop announced it was selling the lease on its 692sq m (7,451sq ft) unit in Scotch Hall. Two months later Zara's sister brand, Pull Bear, claimed it too was exiting the €200 million scheme which was developed by Edward Holdings and opened in 2005.
Both brands are still trading from the same outlets today after failing to attract replacement tenants.
However, there is speculation in the market the landlord may have struck a deal with Topshop and persuaded the fashion behemoth, which was offering lenient sales terms for its lease, to maintain its high-profile presence at the centre.
No one from Douglas Newman Good, the official letting agent for Scotch Hall, was available to confirm or deny these reports.
Yet Drogheda's problems are not unique. Property experts claim regional shopping centres throughout the country, particularly new schemes in Limerick, Kilkenny, Athlone and Arklow, are under pressure.
Many of these developments were suffering teething problems before the recession hit so, as the trading environment deteriorates, these properties are regarded as especially vulnerable.
And as the global financial crisis worsens, the banks' appetite for these schemes has virtually evaporated. Earlier this year property experts calculated there was over 300,000sq m (3.229 million sq ft) of new retail space in the pipeline.
But, as Karl Stewart of DTZ points out, very little new stock has come on the market this year.
In 2009 a further 155,000sq m (1.668 million sq ft) is scheduled to come on stream. "The reality though", says Stewart, is that "few developments will receive funding unless substantial pre-letting is in place".
According to Stephen Murray, retail director of Jones Lang LaSalle, the changed economic climate will result in a smaller number of units at new schemes as the number of potential occupiers contracts. He claimed that landlords had "previously wanted anchors to drive footfall" but were unwilling to "give over a lot of space" as the hefty rents extracted from smaller outlets was where they were "making most of their money".
He said in the future, the trend will be towards larger store formats that will attract strong retailers, such as Penneys and TK Maxx.
Murray also predicted that landlords will be forced into more flexible rental agreements. He claimed there was already evidence in some areas of tenants paying rent on a monthly, rather than a quarterly basis, and said the number of leases linked to turnover is on the rise.
For the first time in many years landlords may also have to abandon any expectation of rental growth. According to Stewart, the prospect of higher rents next year is now a near "impossibility". He says that landlords and tenants will be focused on "trying to make ends meet as best they can".
Even in Dublin city centre's prime trading areas the outlook is grim. Tom Coffey, managing director of the Dublin City Business Association, says around 8 per cent of retailers go to the wall in the capital every year. "The question is whether that figure will be up to 10 or 15 per cent in 2009 and we will only know that in March, when it becomes clear how strong the Christmas and January sales periods were."
