Value and opportunity underpin resurgent demand for retail assets

Investor appetite for retail parks reflects strong performance during Covid and internet resilience

Over the past 24 months retail property has consistently represented a mere five to six per cent of overall property investment turnover. This is a far cry from the 52 per cent it accounted for in 2016, when both Blanchardstown Centre and Liffey Valley traded along with multiple distressed bank portfolio sales. Over the last 24-month period, total turnover in retail investment has been about €650 million but its split shows an acceleration of activity with €250 million trading in 2021, rising to €400 million for the last four quarters.

Unsurprisingly, the largest component of this turnover was the retail-park sector, representing almost 40 per cent of trades followed by shopping centres at 31 per cent and grocery assets at 11 per cent. The demand for retail parks reflects their strong performance in the face of Covid, and their proven internet resilience. While the acceleration of retail investment looks set to continue in the final quarter, its composition is changing with an increasing focus on shopping centres. There is about €140 million of high-profile trades at “agreed” stage, with the majority being shopping centres, including Fairgreen shopping centre in Carlow, Douglas Village shopping centre in Cork, Scotch Hall shopping centre in Drogheda and Marshes shopping centre in Dundalk.

The explanation for the activity is simple: value and opportunity. Unlike the office, industrial and residential sectors, which face a material repricing triggered by the increase of interest rates, the retail sector has in effect spent the last five years being repriced.

It has been adjusted to reflect the risks of online, the impact of Brexit and the impact of Covid, not to mention a period of rapid private debt reduction extracting billions from the domestic economy. In the last decade the Irish consumer has gone from having a gross-debt-to-household-income ratio twice that of the European average to now being below that average. Interestingly, over the same period the Irish population has increased by 11.8 per cent, Irish wages have increased by 26.4 per cent and the number in employment has increased by a staggering 37 per cent.


These key fundamentals are attracting buyers back to a sector in which rents are a mere 55 per cent of peak. This is in sharp contrast to the office sector, where rents are more than 100 per cent of peak, and in residential, which is at 148 per cent of peak.

While the macroeconomic backdrop poses a threat to the sector, the reality is that even accounting for this, Irish consumers are in the best shape they have ever been in. Indeed, household net worth is more than 20 per cent higher now than it was before the global financial crisis and has more than doubled since Ireland’s last shopping centre opened in 2011, with a huge positive shift in the level of debt and the scale of non-housing financial assets.

Next year is likely to see a continuation of the disaggregation of retail portfolios acquired five or six years ago. We may also see a couple of the key M50 assets trade, which will disproportionally impact the figures. As a consequence, we expect to see retail re-enter the fray as a meaningful investment sector within the market and would anticipate that it will break double digits of market share for the first time since 2018.

Rod Nowlan is an executive director at Bannon heads up its office and capital markets team