Irish Shopping Centres and Retail Parks: A Stock Analysis

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1 Irish Shopping s and Retail Parks: A Stock Analysis SPRING 03 part of the UGL global network

Irish Shopping s and Retail Parks: A Stock Analysis The following report provides an overview of the performance of the Irish retail market; specifically the Irish shopping centre market and the

Additionally, a detailed analysis of the Irish shopping centre market is provided in terms of the size of the market on a county by county basis, the gross lettable area per thousand of the

2 Irish Shopping s and Retail Parks: A Stock Analysis The following report provides an overview of the performance of the Irish retail market; specifically the Irish shopping centre market and the Irish retail park market. The report commences with an overview of the general economic environment in Ireland together with an overview of the investment conditions in the retail property market. Additionally, a detailed analysis of the Irish shopping centre market is provided in terms of the size of the market on a county by county basis, the gross lettable area per thousand of the population in each location and the classification of the top shopping centres on the basis of key criteria; size, population density, access to transport and the presence of leading retailers. The final section of the report provides an overview of the Irish Retail Park Market in terms of market size and density levels on a regional basis. Table Ireland s Top Shopping s - 03 Region Density (Per 000 of Population) Size Rating Dundrum Town Very ++ The Blanchardstown + The Square Town + Liffey Valley Shopping + The Pavilions Shopping, Swords + Mid-West Crescent Shopping, Co. Limerick Jervis Shopping Mid-East Navan Town, Co. Meath Mid-East Whitewater Shopping, Kildare Omni Park Shopping IRISh ShOPPING CENTRES AND RETAIL PARKS: A STOCK ANALySIS Spring 03

3 Economic Overview The Irish economy has endured a volatile journey over the past four to five years but an element of stability has begun to emerge. As recently as the beginning of 0, the outlook for the economy was largely uncertain stemming from external pressures; in particular the euro zone financial crisis. However, as the year progressed a combination of policy initiatives implemented at both EU level and domestically resulted in tentative signs of stabilisation emerging in the economy. The outlook for 03 is now relatively optimistic as the Irish economy continues its course towards economic recovery. That said fragilities remain; in particular, slowing economic growth in the UK and the Euro area continues to pose downside risks to the growth outlook. The outlook for 03 is now relatively optimistic as the Irish economy continues its course towards economic recovery Overseas confidence in Ireland has improved considerably, boosted by the long-awaited deal with the ECB to restructure a costly promissory note into less expensive sovereign debt. The landmark deal should see Ireland regain its funding independence, by increasing its chances of exiting the bailout programme and re-entering the financial markets by year end. On a further positive note, both Standard & Poor and Fitch have upgraded Ireland s sovereign debt rating outlook from negative to stable. While final growth figures for 0 are not yet available; the Department of Finance have forecast that the Irish economy will achieve modest growth of less than % in 0, before gradually improving to.5% in 03. Growth in 03 will continue to be driven by the external environment; however the recovery is also dependent on a resumption of consumer spending. Despite high unemployment, on-going fiscal austerity and deleveraging of debt, domestic demand has shown signs of stabilisation. Preliminary figures from the Quarterly National Accounts (QNA) for quarter three reveal encouraging signs of a tentative recovery in domestic demand, rebounding from a sharp contraction during the second quarter. Two of the three components of domestic demand, consumer spending and investment spending, recorded growth in the three month period. In particular, a significant increase of 8.5% in investment spending was the main driver of the increase in domestic. Consumer spending also recorded a quarterly increase rising by a modest 0.5% during the three month period; this compares to a 0.% decline recorded in the previous quarter. The Department of Finance forecast consumer spending to contract by % in 0 while a more moderate contraction 0.5% is forecast for 03. Furthermore Irish consumer sentiment, although weak, improved in 0 relative to 0. Latest results from the KBC Bank Ireland/ ESRI Consumer Sentiment Index for January 03 reveal that Irish consumer sentiment rebounded to a five-month high to 64. from a sharp fall December. The lift in the index in January possibly reflects short term indicators such as post budget digestion and the January sales. The index may be subject to some fluctuation in the coming months, particularly in relation to the impact of the looming property tax. Figure Retail Sales Volume Growth by Sector 0 (annual % change) Source: CSO Spring 03 Irish Shopping s and Retail Parks: A Stock Analysis 3

4 Economic Overview Retail Property Performance The first six months of 0 witnessed mixed performance in retail sales across all sectors. However, the latter part of the year saw signs of stabilisation emerge in line with improvements in sentiment which resulted in an uplift in retail sales. However, this was short-lived as the final two months of the year saw a contraction in retail sales, which was most likely stemming from Budget 03 expectations. For 0 as a whole, the volume of retail sales The volume of retail sales declined at an annual rate of.% in 0 declined by.% when compared with the same period in 0. However, when motor trade figures are excluded, annual data reveals that headline sales grew by %. Despite a strong rebound in consumer sentiment in January, the latest figures from the Central Statistics Office (CSO) reveal that retails sales were weaker than expected in January 03. The volume of retail sales fell by.7% on a monthly basis thus marking the third consecutive monthly decline. When motor trades are excluded, sales were down.4% on December. The results are a reflection of the impact of Budget 03 on household disposable incomes; in the manner of changes to PRSI allowances and reductions in social benefits. The latest data from the Investment Property Databank (IPD) reveals that 0 marked the first annual positive return for the Irish market since 007. According to IPD, total return for 0 stood at 3.%, boosted by strong income returns of 0.%. Capital values on the other hand continued to decline during 0, albeit at a much reduced rate. Capital values fell by 6.4% during the twelve month period; while remaining in negative territory it compares favourably to a reduction of.4% in 0. The retail sector, which remains susceptible to adverse economic developments, continued to struggle during 0. The latest IPD figures reveal that total return weakened during the latter half of 0 and as a result, registered a return of just 0.5% for the year as a whole. This is compared to returns of 4.9% and 4% for office and industrial property respectively during the period. The quarterly income return for retail was steady during the year with 8.8% recorded for the year as a whole. The retail sector suffered the strongest sector decline in capital values falling by 7.6% in 0. This brings the cumulative decline in capital values to -7% since the peak in December 007. Figure Retail Quarterly Total Return & Equivalent Yield Source: IPD 4 Irish Shopping s and Retail Parks: A Stock Analysis Spring 03

5 Shopping Market After more than a decade of robust expansion, construction activity in the Irish shopping centre market has declined notably in the past five years. 0 marked the first calendar year since 966 when no shopping centre development occurred in the entire country. Ireland s first shopping centre opened in 966 in Stillorgan, Co. and since then the stock of shopping centres in Ireland has risen to.98 million sq m as of December 0. This equates to an average of 43 sq m of shopping centre accommodation per thousand of the population in the state in 0. However, across the regions, the spread of accommodation relative to the population ranges from 58 sq m in the west to 63 sq m per thousand in. There are currently 0 purpose-built shopping centres in Ireland, with the majority of centres not surprisingly located in the east of the country. alone accounts for 64 of the nation s accounts for 3% of the overall stock nationally shopping centres, equating to 3% of the overall stock nationally. In contrast to this, counties in the west and midlands have the lowest number of shopping centres, with only one shopping centre in a number of counties such as Cavan, Leitrim and Roscommon. That said, this analysis is based on a local definition of a shopping centre. In contrast, if the European definition of a shopping centre is applied, the number of developments within this definition falls by 80 to. Under the European definition, a shopping centre must be at least 5,000 sq m. Applying this locally, the national total Gross Lettable Area (GLA) falls to.7 million sq m as 40% of the countries shopping centres are less than 5,000 sq m. Not surprising, remains the best supplied county, with a GLA of 7,998 sq m. Conversely, other counties find that under this definition their centres would not meet European standards. The adjoining map illustrates the number of shopping centres in line with the European definition of a shopping centre. The majority of the centres around the country are defined small by the European definition. is the only county with a large shopping centre. Furthermore, the Dundrum Town in is the only centre in Ireland to be deemed very large by European standards, with a GLA of approximately 85,300 sq m. DTZ Sherry FitzGerald Research has undertaken a comprehensive analysis of all the shopping centres with a lettable floor area of greater than 0,000 sq m across all twentysix counties. The study assesses and classifies the retail centres into five key rankings ++, +,, AA and A. The ranking is based on a number of key criteria such as size, population density, access to transport, the presence of leading retailers & brands and food/entertainment services. Table Regional Shopping Density Levels Region Density (Per 000 of Population) Border Mid-East 9 Midlands 503 Mid-West 399 South-East 43 South- West 8 West 58 State 43 Figure 3 Distribution of Shopping s in Ireland, 03 Donegal 3 4 Leitrim Monaghan Sligo Cavan Mayo Louth Roscommon 4 6 Longford Meath Westmeath 3 Galway Offaly Kildare 5 4 Laois Wicklow Clare North Carlow Limerick Kilkenny 6 South Wexford 5 3 Waterford Kerry 5 3 Cork 6 0 Under the European definition, a shopping centre must be at least 5,000 sq m. Applying this locally, the national total Gross Lettable Area (GLA) falls to.7 million sq m as 40% of the countries shopping centres are less than 5,000 sq m. Irish Small: <5,000 Sq m European Small: 5,000-9,999 Sq m European : 0,000-39,999 Sq m European : 40,000-79,999 Sq m European Very : 80,000 Sq m + Spring 03 Irish Shopping s and Retail Parks: A Stock Analysis 5

Shopping Market Results from the study reveal that only five centres or 9% of the entire stock of shopping centre space nationwide is classified as + or higher.

6 Shopping Market Results from the study reveal that only five centres or 9% of the entire stock of shopping centre space nationwide is classified as + or higher. Furthermore, the accompanying figure 3 illustrates the spread of these centres by grade and in particular highlights the disparities that exist in relation to the distribution of shopping centres across the country in terms of both quality and quantity. The Dundrum Town has been identified as Irelands leading standalone shopping centre and the only centre to be awarded ++ status. The Dundrum Town s unique tenant line-up such as House of Fraser, Harvey Nichols, Hamleys and Hollister along with its location and accessibility to transport Only five centres or 9% of the entire stock of shopping centre space nationwide is classified as + or higher contribute to its high ranking. The Blanchardstown, The Square, Liffey Valley and Pavillions make up the rest of the top five centres and the entire category; all of which attained + status. Furthermore in terms of market performance in, these five centres are proving to be the most resilient and continue to achieve new lettings. provides the highest provision of shopping centres of the major cities, accounting for 38% of all the graded centres. Furthermore, all of the larger grade ++ and + centres are located in the capital. At the opposite end of the spectrum, Galway has the lowest provision of space of the major cities with the highest graded shopping centre at AA. Table 3 Ireland s Top Shopping s - 03 Region Density (Per 000 of Population) Size Rating Dundrum Town Very ++ The Blanchardstown + The Square Town + Mid-West Liffey Valley Shopping The Pavilions Shopping, Swords Crescent Shopping, Co. Limerick + + Jervis Shopping Mid-East Mid-East Navan Town, Co. Meath Whitewater Shopping, Kildare Omni Park Shopping 6 Irish Shopping s and Retail Parks: A Stock Analysis Spring 03

Shopping Market In the 0,000-39,999 sq m size category of retail centres, the Crescent Shopping was the top performing centre, closely followed by the Jervis Shopping and the Navan Town.

7 Shopping Market In the 0,000-39,999 sq m size category of retail centres, the Crescent Shopping was the top performing centre, closely followed by the Jervis Shopping and the Navan Town. Mahon Point shopping centre in Cork was the highest ranking shopping centre in the 5,000-9,999 sq m size category. There will be limited new development in 03 and beyond. Convenience and discount retailers, which would include Tesco, Aldi and Lidl, will continue to be active in the market and will frequently develop their own stores. The National Asset Management Agency (NAMA) have announced proposals to invest up to billion in Ireland over the next four years to complete commercial and NAMA have residential projects and to develop announced proposals to invest future Greenfield sites. One of the beneficiaries of this investment will up to billion be the developers of the Charlestown in Ireland over the Shopping in Finglas, North next four years who have secured funding of million from NAMA. Construction is due to commence on a new cinema complex. Rents are beginning to stabilise in the best retail locations and this trend will continue as the economy improves in 03 and consumer sentiment and retail sales start to increase. Rental growth will feature in prime locations first, but many secondary and tertiary locations will continue to experience high vacancy levels and static or falling rents. Figure 4 Irish Shopping s >0,000 Sq M by Grade - 03 Donegal Donegal Mayo Leitrim Mayo Meath Leitrim Offaly Cavan Laois Longford Limerick Galway Cork Waterford 4 North Limerick South Waterford Cork Wicklow Meath Wexford Shopping + Grade AA + A Wicklow Kilkenny Kildare Carlow Kerry Kildare Kilkenny Offaly South Clare 4 Louth3 8 5 Carlow Westmeath North Laois Kerry ++ Monaghan Westmeath Galway Roscommon Clare Louth Cavan Roscommon Longford Sligo Shopping Grade 03 Monaghan Sligo AA A Wexford Spring 03 Irish Shopping s and Retail Parks: A Stock Analysis 7

8 Retail Park Market Similar to the shopping centre market, development activity in the retail park market slowed notably since the onset of the downturn more than five years ago. Construction activity in the retail park market ceased in 009; since then, no new space has commenced construction and no new developments starts are scheduled at present. The total stock of retail park space stood at.7 million sq m at the end of 0. Table 4 Regional Shopping Density Levels Region Density (Per 000 of Population) Border 38 4 There are large disparities in the spread of accommodation across counties An analysis of the total stock of retail park accommodation reveals that 4% was located in the region. A further 8% was located in Limerick with 7% in Cork and 4% in Galway. There are large disparities in the spread of accommodation across counties, for example, Louth had a greater proportion of retail park space than the three regional centres at 8.4%. Furthermore, an analysis of the level of retail park space per thousand of the population reveals some interesting trends. In particular, based on Census of Population figures, Carlow had the largest proportion of retail park space per thousand of the population at 908 sq m. This was closely followed by Louth with 804 sq m per thousand and Sligo with 70 sq m per thousand. The average level for the State stood at 56 sq m at the end of 0. was slightly below this ranking with 4 sq m per thousand of the population. Mid-East 34 Midlands 39 Mid-West 30 South-East 3 South- West 58 West 8 State 56 Figure 5 An analysis of the spread of retail park space across the regions is more informative. From this analysis, the border region has the largest stock of retail park accommodation relative to the population, with 38 sq m per thousand. This is significantly ahead of the other regions and the State. The lowest was in the South-West region with 58 sq m per thousand of the population. In terms of the profile of retail park space, there are currently 3 retail parks in Ireland. Just over 0% of the parks are located in ; a further 9% are located in Cork and 6% in Limerick. Distribution of Irish Retail Parks - 03 Donegal Small: <0,000 sq m : 0,000-0,000 sq m Leitrim Monaghan Sligo Cavan Mayo Louth Roscommon Longford Meath 4 Westmeath 4 Galway 9 3 Offaly Kildare Laois Wicklow Clare North Carlow Limerick Kilkenny 4 South Wexford 5 3 : 0,000-30,000 sq m Very : >30,000 sq m Kerry Cork 7 3 Waterford 5 8 Irish Shopping s and Retail Parks: A Stock Analysis Spring 03

Outlook for the future The Irish economy has come a long way over the past five years and while recent economic indicators have been largely positive, the recovery remains strained by prevailing

9 Outlook for the future The Irish economy has come a long way over the past five years and while recent economic indicators have been largely positive, the recovery remains strained by prevailing uncertainties such as a slowdown in world trade. The economy is estimated to grow by.5% in 03, however as domestic demand remains fragile it may be some time before the true impact is witnessed in the retail market. In the shopping centre market, demand remains concentrated on the larger centres with a particular focus on the higher grade shopping centres. As a result, these locations are experiencing greater demand with vacancy rates remaining low. The performance of secondary and tertiary retail is location specific, with poorly located and inadequately designed developments nationwide proving the least attractive for occupiers. In the retail park market, trading conditions remain challenging. The strength of expansion in the retail park market from coincided with strong performance in the Irish residential market and subsequent growth in consumer expenditure. Similarly, stability is expected to return to the retail park market in line with an emerging stability in the housing market. On a positive note, the housing market and in particular the market appears to have turned a corner in 0 and as such the retail park market is expected to experience a similar trend. Spring 03 Irish Shopping s and Retail Parks: A Stock Analysis 9

AUThORS Marian Finnegan Chief Economist, Director Research +353 (0) 37 634 marian.finnegan@dtz.ie Siobhan Moloney Research Manager +353 (0) 37 637 siobhan.

ie About DTZ Sherry FitzGerald DTZ Sherry FitzGerald is the sole Irish affiliate of DTZ, a UGL company, a global leader in property services.

part of Sherry FitzGerald Group, Ireland s largest real estate adviser.

10 AUThORS Marian Finnegan Chief Economist, Director Research +353 (0) Siobhan Moloney Research Manager +353 (0) Karl Stewart Director of Retail +353 (0) About DTZ Sherry FitzGerald DTZ Sherry FitzGerald is the sole Irish affiliate of DTZ, a UGL company, a global leader in property services. With Irish offices in, Cork, Galway, Limerick and an associated office in Belfast, we are the largest commercial property advisory network in Ireland and are part of Sherry FitzGerald Group, Ireland s largest real estate adviser. We provide occupiers and investors around the world with best-in-class, end-to-end property solutions comprised of leasing agency and brokerage, integrated property management, capital markets, investment, asset management and valuation. DTZ has 47,000 employees including sub-contractors, operating across 7 offices in 53 countries. 03

Irish Investment Market Review

Irish Investment Market Review SPRING 2013 part of the UGL global network Economic Background The Irish economy has endured a volatile journey over the past four to five years but an element of stability