Lack of new retail space will inflate value of existing units as high spending continues

 

This year will be best remembered for the remarkable lack of new space, at a time of unprecedented growth in retail spending, rather than for any noticeable trend or deal. Only two new shopping centres opened this year - Ashleaf in Crumlin, Dublin (150,640 sq ft) and Blackpool in Cork (129,120 sq ft). There was a very insignificant level of anchor additions: Superquinn, Waterford (34,432 sq ft), a replacement Tesco store at Maynooth (19,368 sq ft net addition), together with the Dunnes units at Ashleaf (54,876 sq ft) and Blackpool (74,244 sq ft). The effects of the complicated and restrictive planning regimes, derived mainly from the Retail Planning Guidelines, are being felt, ironically, when the need is greatest. That can lead to only one effect - a rise in values. This trend goes some way to explain the reputed £10 million paid by Dunnes for the 21,520 sq ft C+A retail unit at Liffey Valley (equating to £418 per sq ft). This price paid by Dunnes reflects not only the uplift in values due to scarcity of space but, more particularly, the confidence of retailers and the property market in Liffey Valley's success. With few opportunities available there, the continuing 20 per cent per annum growth in footfall, coupled with the outstanding success of the Ster Century cinema, demonstrate that values there are destined to rise. This increase, ironically, is more likely in the absence of the proposed 322,800 sq ft phase two extension. A revised application for this can be expected during 2001.

Blanchardstown continues to go from strength to strength with the completion of the retail park and the announcement that Penneys is joining the tenant line-up with a 39,812 sq ft store next year. Next year will also see the first rent reviews occurring there - a fate currently facing tenants at The Square, Tallaght, where permission is sought for a further 152,996 sq ft extension. With double rent and rates reliefs now ending, rental increases at The Square will be watched with interest.

In city centres around the country, there have been remarkably few transactions. In Dublin, both Grafton Street and Mary Street have experienced exceptional rent increases with Lush apparently paying the equivalent of £281 per sq ft Zone A rent on Lower Grafton Street, opposite Trinity, and JD Sports paying £274 per sq ft Zone A rent at Mary Street, opposite the Jervis Centre. Both of these rents represent very substantial uplifts on previous highs.

The prime pitches in Cork, Limerick and Galway all remain very tightly held with few transactions to identify the magnitude of the upward rental trend. The most noticeable activity in Galway was the redevelopment of the Dunnes unit at Eyre Square with the creation of some large units incorporating Next and Top Shop.

This has been a notable year for both retail warehousing and the ingress of the German foodstores, with both Aldi and Lidl making dramatic inroads in property and trading terms. Aldi opened five stores during the year compared to Lidl's eight; they expect to add a further 12 and 20 stores respectively during the coming year.

Most large towns now have developments in progress or proposals for retail park schemes, many of them anchored by Atlantic Homecare, Woodies or Texas (Homebase). Rents are ranging from £7 per sq ft in provincial locations up to £19 per sq ft in Dublin. With few opportunities in Dublin, the schemes at Blanchardstown Shopping Centre, Liffey Valley and Crowcastle at Swords are almost fully let. The key issue is the 64,560 sq ft size restriction recommended by the Retail Planning Guidelines. This is having an impact on the introduction of companies such as B+Q. A local authority decision to grant permission for stores of around 96,840 sq ft at the Blanchardstown centre is being appealed by third parties. The desire by B+Q and IKEA for a single all-Ireland store in the Dublin region is impeded by these recommendations. Although still with significant vacancies, the Green Property outlet centre in Killarney has reports of good trading by Nike, and 2001 will see the opening of the Morrissons Outlets scheme at Rathdowney, Co Laois, which is being well received by retailers.

During the year, permissions were granted for the Alice Developments (Castlethorn) scheme at Dundrum (379,860 sq ft of retail space, 238,603 sq ft of leisure space and 3,000 parking spaces). With the main contractor appointed and detailed competitive anchor store negotiations underway, we can expect to see this scheme opening for trade in late 2003.

Early next year, the 236,720 sq ft first phase of the Pavilions at Swords will open, anchored by Dunnes, Superquinn and Penneys; virtually all its shops are pre-let, many at premium rents of around £130 per sq ft Zone A.

The 64,990 sq ft extension at Clancourt's Crescent Centre in Limerick is nearing completion, and Tiernan Properties' 161,400 sq ft Ennis Road scheme may also start.

Planning decisions on O'Callaghan Properties' scheme at Mahon in Cork, beside the Jack Lynch Tunnel, the extension to Navan Shopping Centre (already almost fully pre-let), and Ballymore Properties' 299,128 sq ft Newbridge Scheme, should all issue.

The joint NBA and Treasury Holdings' town centre redevelopment scheme encompassing Dunnes, Tesco and Penneys in O'Connell Street, Sligo, should enter the planning phase.

Irish Life's much promised revamp of the ILAC must start, to complement Shelbourne Developments' Parnell Street/Moore Street scheme, already underway, and the still-awaited Millennium Mall. The inflow of new UK retailers has slowed down, but demand continues to be strong for branch expansion from those already here. Continental European and American retail ers are looking at the market and 2001 may be the year for Zara and other worldwide brands to make their entry here.

The rate of growth in retail spending is likely to slow down next year, but with the Retail Planning Guidelines relating to the Greater Dublin area (based on population statistics now recognised as being historic) forecasting a need for up to three million-plus sq ft of extra comparison space between 1996 and 2011, only 1,076,000 sq ft have been built and half as much again approved. It is clear there is a developing underprovision of space that is becoming increasingly cumbersome and time consuming to redress. As a consequence, retail values are likely to continue to show strong growth over the next two to three years.

Aidan O'Hogan is Managing Director of Hamilton Osborne King and a specialist in the retail market