Although much is made each year of Grafton Street’s appearance in the annual ranking of the world’s most expensive main streets by commercial real estate adviser Cushman & Wakefield, the story behind the headline is, unsurprisingly, a little more complex.
For while luxury brands and other high-end retailers continue to pay a premium to showcase their merchandise on the country’s most celebrated thoroughfare, rents on the street remain far below the levels achieved before the 2008 crash.
Having fallen sharply during the recession and bottomed out in a range between €232 and €278 per sq ft (€2,500-€3,000 per sqm) in 2012 – down from a pre-crash high of €743 per sq ft (€8,000 per sq m) – the numbers had climbed back to the point where several pre Covid-19 rent settlements reached €576 per sq ft (€6,200 per sqm), according to BNP Paribas Real Estate.
While that’s still some way off the dizzying heights of the Celtic Tiger era, it isn’t insignificant when one considers the growing challenge online shopping has presented to the traditional physical retail model in recent years.
As the economy eases its way out of the unprecedented lockdown, it will be interesting to see if Grafton Street’s retailers can lure their pre-pandemic patrons back from their online shopping carts in sufficient numbers.
The coronavirus has already taken its toll on the street with several vacancies arising as a direct result of Covid-19. Cath Kidston, Monsoon and House of Ireland have all succumbed to the financial shock caused by the overnight disappearance of shoppers.
The reopening of Bewley's Grafton Street café meanwhile remains dependent on the acceptance of a proposal by Bewley's to pay its rent arrears along with interest and legal costs arising from the case taken by its landlord, developer Johnny Ronan's Ronan Group Real Estate.
Altogether, there are up to 10 shops currently vacant on Grafton Street with several, including the former Top Man, Ecco and Urban Decay stores, already unoccupied prior to the arrival of Covid-19.
With about 41 per cent of the street's premises owned by four Irish property funds – Irish Life, Iput, Precient and State Street Global Advisors, who manage on behalf of New Ireland Assurance and others, any long-lasting decline in the performance and value of their respective portfolios could ultimately end up being reflected in the reduced pension pots of the very people who deserted the high street and went online to do their shopping.
Supply and demand
“Reduced footfall in itself will not lower rents,” says Eoin Feeney, BNP Paribas Real Estate’s head of retail.
“Rents are dictated by market supply and demand. The fallout from Covid-19 has brought a sharp and unprecedented spike in supply, coupled with a decrease in demand as the majority of retailers have shelved expansion plans as their priority is to rebuild balance sheets, replenish cash reserves and sell an overhang of stock through successfully reopening stores within their existing portfolios. The extra challenge here for them is social distancing restrictions limiting in-store customer numbers.”
Feeney readily admits that rents may well fall in the short term due to the temporary imbalance between supply and demand for units on the street. So how far can rents fall?
“It is too early to call where they will drop to and this will be dictated by the rent levels negotiated in new leasing transactions,” he says.
Looking at the immediate prospects for Grafton Street, he says there are “a number of active requirements” that should lead to new lettings by the end of the year. He cautions, however, that the depth of demand will not be enough to see all available properties relet in 2020, and that it will be 2021 before there is a “re-emergence of strong occupier demand as retailers return to growth strategies”.
As is the case with every other major shopping destination around the world, Grafton Street’s revival will be dependent in the first instance on the return of the shoppers, office workers, tourists and other overseas visitors that had flocked to them in numbers prior to the pandemic.
In the absence to date of a vaccine or effective treatment for Covid-19, the recovery for Grafton Street and other city centre retailers has been sluggish in comparison to large out-of-town shopping centres as shoppers shy away from using public transport due to capacity issues and health concerns.
Commenting on this trend, Feeney says: “While you can easily walk or cycle to town from Ballsbridge or Ranelagh, it’s a bit more challenging making the same journey from Balbriggan or Rathcoole.”