Grafton Street recovery augurs well for health of retail sector

Rents and values in Dublin’s busiest shopping area register strong growth

Grafton Street, Dublin: rents on the street have  risen to €5,500 per sq m (€511 per sq ft).  Photograph: Dara Mac Dónaill / The Irish Times

Grafton Street, Dublin: rents on the street have risen to €5,500 per sq m (€511 per sq ft). Photograph: Dara Mac Dónaill / The Irish Times

 

Grafton Street is often cited as a barometer for the retail sector, and latest figures suggest a recovery in rents and values is well under way.

Zone A rents on the street peaked in 2006 at around €10,000 per sq m (€929 per sq ft). This meant rents on Dublin’s premier shopping street were on a par with the Champs- Élysées, Oxford Street and Gran Via in Madrid.

However, rents on the street dropped rapidly during the crash to around €4,000 per sq m (€372 per sq ft) but have since risen to €5,500 per sq m (€511 per sq ft). This recent 37.5 per cent increase in rents, driven by annual retail sales growth of 9.2 per cent, still leaves Zone A rents 55 per cent off peak levels.

“In the past it wasn’t unusual for a retailer to pay a premium in order to secure a prime pitch on Grafton Street, but this phenomenon fell away in 2007/ 2008,” says Simon Cooper, senior director of CBRE’s retail department .

“I am not suggesting that premiums are likely to return to the market in the short term but recent transactional evidence suggests that when retail units eventually become available on the street, they have often been subject to competitive bidding, particularly where floor plates are in excess of 500sq m.”

CBRE has been involved in eight transactions on or just off Grafton Street over the past 18 months. Mr Cooper believes the street and its environs have benefitted greatly from recent lettings to the likes of Massimo Dutti, Levi’s, Vans and Nespresso.

“These lettings have helped to broaden the street’s appeal to other international brands who are jostling to identify accommodation with suitable floor space. Some of these retailers will be forced to follow the example set by H&M and Cos, who ultimately decided to locate off Grafton Street in order to trade from larger stores.”

Pension funds and institutional investors own around 60 per cent of the retail stores on the street, with the balance in the hands of private individuals and owner-occupiers. Prominent Grafton Street landlords include Royal London, Irish Life, State Street, GLL and Iput, while Signature Capital, GLL and Deka have recently acquired properties on the street.

Interestingly, 48 per cent of the retail investment deals on Irish high streets last year were transacted on Grafton Street or Henry Street. However, since 2006, there have been just 12 transactions completed on Grafton Street, where the average lot value was around €23 million. This does not suggest that there is little appetite amongst investors for Grafton Street property, according to agents, but that investors buy on the street for the long term.

Grafton Street is still Dublin’s busiest shopping street, with footfall peaking on Saturday afternoons at almost 45,000 people per hour. Footfall is at its highest outside The Card Gallery and Marks and Spencer.

There are 91 retail outlets on the street, of which 28 per cent are dedicated to fashion and footwear. Banks, food outlets and phone shops account for 20 per cent of the properties while almost 59 per cent of the street is occupied by international retailers.

Natalie Brennan, director of capital markets at CBRE, believes it is not a coincidence that Grafton Street has witnessed an upturn in fortunes on the back of initiatives such as Dublin City Council’s repaving programme, and the designation of the street as a scheme of special planning control.

This “special planning control for Grafton Street and the environs” effectively preserves Grafton Street for high-end retail use akin to the likes of Bond Street.

“When the retail market fell into decline in 2010, vacancy levels on the street increased. However, this planning restriction remained in place ensuring that the quality of retail uses on the street was upheld and in turn protected existing holdings,” says Ms Brennan.

“Going forward, this planning restriction is of great comfort to an investor seeking to buy on the street and especially for European investors who have a preference for core plus retail assets in Ireland.”