Rising prices, inflation and higher energy costs have impacted retailers and consumers alike during 2022. Consumer sentiment has fallen sharply, but we have not seen a significant corresponding decline in retail sales, which are still well above February 2020 (pre-Covid) levels. Ireland’s economic fundamentals remain strong – we are still topping EU rankings in terms of GDP growth, employment is now at record levels and household savings are a third higher than in 2020. It may seem over simplistic to say that these factors are providing a hedge against the worst impacts of global events but certainly something is. The fact that, unlike other jurisdictions, we don’t have an oversupply of retail space, also helps.
Covid, Brexit and UK company voluntary arrangements (CVAs) combined over 2020 and 2021 to create an unprecedented spike in Irish retail vacancy levels. The hardest hit was our high-street sector. A practical example would be the fact that this time last year, 16 units (11 per cent of total retail floor space) were vacant on Grafton Street. A host of leasing transactions during the year has brought vacancy down to a current level of six units (5.4 per cent of retail floor space). If Grafton Street provides an accurate barometer to the recovery of the high street since, then the future is looking quite bright.
These new lettings have not been to any old retailers but best-in-class international brands including Canada Goose (Canadian), Skechers (US), Russell & Bromley (UK), Dr Martens (UK) and Lego (Danish). Our colleagues across the Colliers international network are looking on with some envy at the strength of Irish occupier demand and depth of leasing transactions. We fully expect Grafton Street to reach 100 per cent occupancy over the course of 2023.
Henry/Mary Street is lagging behind its southside counterpart and vacancy issues still exist. One of the largest retail buildings in Dublin city centre, the former Debenhams department store, remains shuttered. Vacancy here has fallen from a peak of 11 units (22 per cent of retail floor space) to a current level of eight units (19 per cent of retail floor space). Most notably, if we strip Debenhams out of the total, vacancy in terms of retail floor space falls to just 2.4 per cent. It is clear to see the impact that this level of disused floor space can have on the rest of the street in terms of retailer sentiment. We understand there is active interest from more than one retail owner occupier for the former Debenhams and assuming this interest converts to a sale and the eventual reopening, this will be a catalyst for renewed occupier demand for the adjoining unit shops.
It is not all doom and gloom on the northside, though. Penneys on Mary Street, the largest in its national portfolio, remains its busiest. Arnotts is trading above target. The performance of the nearby JD Sports flagship has given the JD Group confidence to introduce its sister brand Tessuti to Ireland. This will replace the former Topshop, opening mid-2023. H&M and Flannels are both opening at the former Clerys department store on O’Connell Street, while Hammerson’s plans to develop the six-acre Dublin Central site have to date stalled as the developer endeavours to navigate the choppy and shark-infested waters that are the current Irish planning system. All parties who genuinely want to see urban regeneration in this part of the capital should support their plans for one of the country’s most important development sites.
Footfall has strongly rebounded in the main shopping centres and in many cases has exceeded pre-pandemic levels. This has been a record year for take-up in the larger suburban schemes with numerous major space user (MSU) and anchor lettings or announcements. Penneys (65,000sq ft) opened at the Square, Brown Thomas (63,000sq ft) opened in Dundrum with Dunnes Stores (40,000sq ft) set to open there in 2023. Last week, the second-largest Zara store (53,000sq ft) in the world opened in Blanchardstown Centre and this week will see the opening of upmarket department store Flannels (43,000sq ft). Flannels has also taken several other large units across the country, many formerly occupied by Debenhams.
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We will see vacancy levels in 2023 continuing to abate in all our better shopping centres with several new occupiers already committed to store openings in 2023. One of the most exciting is Nike, who will open their first ever Nike Unite format store in Ireland next May, also at Blanchardstown Centre.
Rental growth will be a feature in many retail property subsectors in 2023. This is inevitable as strong occupier demand leads to competition between retailers to secure the limited number of better located and configured retail opportunities. The more prudent and experienced retail owners will, however, maintain a primary focus on long-term fundamentals, ie covenant strength, user mix and income sustainability, over short-term rental gains.
The post-Covid era has clearly demonstrated the resilience of bricks-and-mortar retail and we expect 2023 will be the year when the media’s misguided obsession with the “death of physical retail” will finally end. Instead, “omni-channel” seems the way forward and it is likely that the sustainability of the purely online retail sector will be called more and more into question going forward.
Eoin Feeney is director of retail at Colliers
