Growth prospects uncertain for Dublin’s retail sector

Contrast to office sector, where investor demand and tenant supply has driven values

It’s not all doom and gloom in retail as the food and beverage sector is experiencing strong demand

It’s not all doom and gloom in retail as the food and beverage sector is experiencing strong demand

 

The latest commentary on Dublin’s retail sector points to an uncertain market which shows little of the underlying occupational strength of the office, residential and industrial segments.

This is according to agent Colliers International, which points out that retail accounted for 50 per cent of all investment transactions in 2016 but this contracted to 28 per cent last year and was “a mere 3.3 per cent in the first quarter of 2018”.

But it’s worth remembering that the majority of Irish shopping centres and retail parks have changed hands over the past five years, so some contraction in transactions could be expected.

“What has been noteworthy,” according to Colliers, “is how the sheer weight of international capital that pursued retail investment opportunities drove down yields while there was limited new occupier demand to underpin rental flows and drive rental growth.

“This is in marked contrast to the office sector where values have been driven by investor demand and the continuous supply of tenants with huge appetites for space.”

Discounting

The uncertainty in Dublin’s retail market seems surprising given the booming economy and sales growth of 4.6 per cent in the year to June. However, while sales volumes might be increasing, the value of those sales has not been rising anywhere near as quickly. As a result, discounting is the name of the game for many retailers and “few are looking to increase their real estate footprints”, according to Colliers.

The elephant in the room for retail property is online trading which Colliers describes as “a disrupter and threat to bricks and mortar retailing”. About 12.5 per cent of Ireland’s annual 40 billion consumer spend is now done online and 60 per cent of this is to overseas companies.

“Tellingly,” comments Colliers, “in a recent trading statement, international retailer Next announced that online sales were growing at 8 per cent per annum while in-store sales were declining by 10 per cent.”

However, it’s not all doom and gloom in retail as the food and beverage sector is experiencing strong demand with much of this coming from many Irish operators, like Press Up Group, Bunsen, Avoca, Fallon & Byrne, Mercantile Group, Boojum, NolaClan, and Sprout.

“Easily the most high-profile food and beverage transaction this year has been the opening of The Ivy by Caprice Holdings in Green Reit’s prestigious new development at One Molesworth Street,” says Colliers.

“Owners of shopping centres are also focusing on improving their food and beverage and leisure mix to make shopping more experiential in order to defend footfall and increase dwell time. Expect to see more and more focus on all this moving forward.”