Irish Retail Market Review

Transcription

1 Review JUNE 2013 part of the UGL global network

2 Economic Background The following report provides an overview of the performance of the Irish retail market; the report endeavours to provide a review of the economic conditions impacting the overall retail market together with a review of trends in both the retail investment and occupier markets of Ireland. A particular focus is given to the performance of the retail markets in the regional centres of Dublin, Cork, Limerick and Galway. The latest available figures from the Central Statistics Office (CSO) reveal that the Irish economy grew by 0.9% in 2012, with the volume of GNP rising by 3.4% in 2012 when compared with the previous year. The Department of Finance have forecast that the Irish economy will achieve modest growth of 1.3% in 2013, followed by slightly stronger growth of 2.4% in 2014 and 2.8% in Domestic demand remains weak. Personal consumption, which accounts for approximately two thirds of domestic demand, fell by 0.9% in While still in negative territory the annual decline was lower than the 2.4% fall recorded in In relation to the other components of domestic demand; government expenditure was down 3.7% in 2012, however capital investment rose by 1.2%; the first annual increase since The Department of Finance have forecast that government expenditure will decline a further 2.1% in 2013 while capital investment is forecast to rise by 3.7%. Recently released retail sales data from the CSO shows continued mixed performance across all sectors. Headline sales were broadly unchanged, up 0.2% in volume terms in April and were also 0.5% higher on an annual basis. In comparison, sales were 1.4% lower on a monthly basis in April Furthermore, excluding motor trades, sales were down 0.3% in the month and 0.3% annually. The sectors with the largest monthly volume increases in April were Books, Newspapers & Stationery (+8.7%), Electrical Goods (+2.6%) and Motor Trade (+1.7%). Figure 1 Retail Sales Volume Year on Year %, April 2013 Source: CSO 2 June 2013 Irish Retail Market Review

3 Economic Background The latest figures from the Quarterly National Household Survey for the first quarter of 2013 reveal some positive trends. Notably, employment increased by 20,500 or 1.1% in the year to quarter one. Additionally, seasonally-adjusted employment increased by 7,700 in quarter one. This represents the second successive quarter of employment growth. Furthermore, employment is higher in eight of the fourteen economic sectors over the year. The total number of persons out of work decreased by 29,900 or 9.3% during the twelve month period. Moreover, the seasonally adjusted unemployment rate fell over the first quarter of the year from 14.1% to 13.7%. On a seasonally adjusted basis, the number of people signing on the Live Register fell by 100 in April; bringing the total persons on the Live Register to 426,900. There was a marginal increase in consumer sentiment in May as the KBC Bank Ireland/ESRI Consumer Sentiment Index edged upwards to 61.2 from its April reading of The 3-month moving average was broadly unchanged, increasing from 59.4 to Consumers remain concerned about Irish economic prospects and therefore less inclined to make major purchases. Figure 2 Consumer Sentiment Index May 2013 Source: KBC Ireland/ESRI 3 June 2013 Irish Retail Market Review

4 Investment The Irish investment market witnessed strong performance during the opening quarter of The sale of retail assets increased during the three month period accounting for 13% of the total investment volume. In the retail sector, there were four deals greater than 1 million recorded during quarter one, the largest being the sale of two retail units on Grafton Street, Dublin 2 to the German fund manager GLL Real Estate for approximately 40m. The appetite for retail property has strengthened as evidenced by increased activity together with multiple bidders on well located properties. Retail investment activity poised to grow Activity levels are expected to improve in quarter two, boosted by the sale of the Edward Square retail complex off William Street in Galway to a Dublin based investor Signature Capital. The sale price was approximately 27m. The city centre investment comprises six retail units providing total accommodation of approximately 7,750 sq m with a rent roll of approximately 2.4m per annum. The investment will show a net initial yield of approximately 8.5%. Figure 3 Retail Quarterly Total Return & Equivalent Yield Source: IPD 4 June 2013 Irish Retail Market Review

5 Investment The latest figures from the IPD/ICSI Ireland Quarterly Property Index reveal on-going weakness in the retail sector. The decline in capital values accelerated during quarter one to -2.3%, outweighing the 2.1% increase in income return. As a result, total return contracted by 0.2% during the opening quarter of On the main shopping streets in Dublin, capital values on Grafton Street contracted by 3.6%. Values on Henry/ Mary Street have declined by 1.2%. Figure 4 Retail Grafton Street Market Performance Source: IPD Figure 5 Retail Henry Street/Mary Street Market Performance Source: IPD 5 June 2013 Irish Retail Market Review

6 Transaction Activity The retail sector continued to face headwinds during the opening half of 2013 with anecdotal evidence suggesting that everything from the impending property tax to poor weather conditions all served to make the trading environment very tough. In particular, the retail high street remains under attack as the changing profile of consumer spending together with heavy overhead costs continue to put pressure on margins and as a result uprooting even the most established retailers. Interestingly, data sourced by Retail Ireland, reports that retailers are now giving a greater focus to their online operations. Online transactions currently equate to 4.1 billion of sales by Irish retailers annually. This is predicted to increase significantly to 21 billion by The survey conducted by circa 500 stores, reveals that 84% of those surveyed have an online presence and that an estimated 15% of sales now emanate from online sales. Since the start of the year, examiners have been appointed to a number of high profile retailers including the hardware chain of B&Q, Monsoon, Pamela Scott together with HMV and Xtra-Vision. However, B&Q Ireland has successfully exited examinership following the High Court s approval of an investment plan for the High streets remain under pressure group. The Pamela Scott stores have also exited the examinership process; citing renegotiation of leases as being crucial to the success of the restructuring process. While restructuring specialists Hilco have rescued approximately 140 HMV stores in the UK a similar deal for the Irish business looks unlikely, however there is some discussion emerging that a selection of Irish stores could survive. The coming months could see an increase in the number of examinerships owing to a legal change that allows companies apply for examinership in the Circuit Court rather than the High Court. Furthermore, there has been a shift away from the fear of reputation damage associated with entering examinership. While the retail market has suffered a spate of casualties since the start of the year and with many more at risk, there has been some positive news in the marketplace. In particular, value retailers continue to remain active filling much of the vacant space. Aldi continues to expand its Irish operation with the opening of its 100th Irish store in Callan, Co. Kilkenny. The German discounter has announced plans to open a further 20 stores in Ireland over the next three years. Existing retailers such Dealz, urogiant and Euro 2 also remain active in the market. NAMA announced plans to fund the amalgamation of 57/58 Grafton Street creating approximately 750 sq m of accommodation. To date there has been considerable interest in this unit. Most notable retailers that are keen to have a profile along Grafton Street are Gant, Hugo Boss and the Inditex group; whose brands include Zara, Pull and Bear, Berskha and Massimo Dutti. That said, such parties are reportedly also focusing their attention on the former HMV unit at 65/66 Grafton Street. This is a sizable unit, the ground floor extends to 418 sq m. There is also retail use on the first floor of 426 sq m and a further 390 sq m at basement level, making it an attractive option on a street with limited large units. Other contenders for the property may well include Gap and Nike, which have recently opened out-of-town stores at Westend in Blanchardstown, Dublin 15. Banana Republic and Mango may also show interest in the store as well as H&M, currently based on South King Street. Given the shortage of larger retail space along Grafton Street retailers are increasingly looking to adjacent streets along Dame Street and Wicklow Street. US Cosmetics company, Benefit have taken a unit on 17 South William Street, measuring a floor area of approximately 322 sq m with a reported rent roll of 80,000 per annum. In addition, there are a number of high profile retailers looking at units on Dame Street. In the shopping centre market, demand remains concentrated on the larger centres with a particular focus on the higher grade shopping centres. 6 June 2013 Irish Retail Market Review

7 Transaction Activity In Dundrum Town Centre, Hughes & Hughes announced the closure of its Dundrum Town Centre branch, which was one of the biggest in the Republic when it first opened. Hugo Boss are to take over the former Optical Express unit and AIB are opening their first digital bank store. New tenants to Stillorgan Shopping Centre include Mao at Home and Specsavers while Sketchers opened their sixth store in The Square Town centre in May. UK fashion retailer Bank recently opened a store at Liffey Valley shopping centre while Penneys, the Irish affiliate of Primark, have reportedly taken 6,000 sq m in Liffey Valley. Additionally, TK Maxx is shortly to open a large outlet in Dublin s Ilac shopping centre. Expansion plans in the convenience sector The line up at Westend shopping park in Blanchardstown has been boosted by the opening of the Nike Factory Store and a Gap Outlet before Easter. Both retailers have signed up to 10 year leases and will be occupying approximately 929 sq m respectively. Rental details are confidential but headline rents are 323 per sq m. Other notable developments in this sector include an up-coming alteration of the St Stephen s Green shopping centre. At present, there are plans to develop a new 10 screen cinema complex on the roof of an existing car park, with an expected seating capacity of 1,860. The 10 million project has reportedly received full planning approval from An Bord Pleanála. Further positive news in the convenience sector includes SuperValu announcing plans to invest 20 million in its ongoing expansion with three new stores set to open during 2013; in addition to extending and refurbishing a further 40 existing outlets. Similarly, Centra also have announced expansion plans. Centra opened 18 new stores in 2012 and has committed to a 20 million investment which will see the addition of 20 new stores to its network during The high-end, Dublin-focused food retail sector has seen a number of expansions. Donnybrook Fair opened its fifth food store on Gallery Quay, Grand Canal Square in Dublin 2 while The Butler s Pantry is shortly due to open its 10th store in Castleknock, Dublin 15. This niche area is proving to be a notable growth sector in the wider retail market. Outside of Dublin, the Galway retail market has continued to strengthen at a moderate pace in the first quarter of 2013, with the majority of leases within the shopping centres being let on a short lease. Pop up shops, all in tenant packages and turnover rents are still prevalent. Demand is strongest for prime locations in main cities however in Galway city international retailers still struggle to find the right retail space in their target locations. In Limerick, Trailfinders, who are expanding their operations nationally, acquired Number 7A Cruises Street which was sold with vacant possession for a reported 800,000. In addition, enquiries from new retailers to the market are increasing. CeX (Complete Entertainment Exchange Limited) are a second hand technology, entertainment and exchange group, who have entered the Irish market. CeX opened a pilot store in Liffey Street, Dublin in 2012 through a franchise. In March 2013, they set up a new Irish company and their first store opened in Wexford. In addition, CeX have plans to expand significantly throughout Furthermore, Smartspot are a new Irish retailer with a similar concept to CeX buy/sell/exchange - however they focus mainly on second hand apple products. They are a specialist smart device retailer and are actively seeking new retail opportunities. 7 June 2013 Irish Retail Market Review

8 Prime Rent Analysis Prime Zone A rents across the main streets in Ireland were at their peak in the closing months of 2007 and opening months of This followed a period of phenomenal growth due to strong demand from international retailers seeking to locate and expand in the Irish market. At this time, Grafton Street in Dublin was deemed to be one of the most expensive high streets in the world. However in the interim, rents have decreased dramatically with prime rents on Grafton Street now standing at approximately 4,000 per sq m. Furthermore, capital values on the street have also witnessed downward pressure which is highlighted by the sale of the River Island Store and the adjoining Wallis outlet for a reported 115 million in The buildings were subsequently sold for just over 40 million earlier this year, reflecting a 65% decline in value. Prime rents on Shop Street in Galway at the height of the market were approximately 3,500 per sq m. Corresponding high streets rents for Cork and Limerick stood at 4,600 per sq m and 2,100 per sq m respectively. However, subsequently, high street Zone A rents for the regional centres came under pressure as a result of domestic and international economic circumstances and have remained under pressure since then. Prime Zone A rents on Grafton Street have witnessed a 60% reduction on peak levels. Figure 6 Limerick s prime Cruises Street has also experienced a reduction in rents of 60%, Prime Zone A Rents while Cork s Patrick Street has seen a 57% drop in rents per sq m. Rents have fallen at a slower pace in Galway s Shop Street; falling by approximately 31%. Source: DTZ Sherry FitzGerald Research 8 June 2013 Irish Retail Market Review

9 High Street Analysis A recent analysis of the profile of Dublin s prime retail street, Grafton Street reveals that a total of 78 units are situated on the street. Approximately half of tenants are domestic retailers while the remaining are international brands. Of the 78 units, 9% were deemed to be vacant at the time of writing. An analysis of the range of tenants reveals that the comparison goods sector accounts for 85%, while the convenience goods sector accounted for 15% of all units. Within the comparison goods category, clothing/footwear absorbed a significant proportion of units, 35%. Interestingly, jewellery stores account for 11% of the total stock. On Henry/Mary Street, there are a total of 59 units with a vacancy rate of 5%. Of the occupied units, Irish tenants account for 55% and international tenants occupy 45% of the space. Comparison goods occupy 95% of occupied stock, with convenience goods accounting for the remaining 5%. Furthermore, the Comparison goods sector dominates high streets clothing/footwear category make up over half of the convenience units. On Cork s prime retail street, Patrick Street, there are a total of 90 units. Of the occupied units, 65% are occupied by domestic retailers, while 35% are international tenants. There is a vacancy level of 13% on the prime street, however there is a shortage of vacant space measuring between sq m. Comparison goods largely dominate Patrick Street, absorbing 92% of the total units. Within this group, clothing/footwear accounts for 45% of the total stock. A total of 46 units are situated on Galway s prime retail street, Shop Street. Approximately 64% of the occupied units are accounted for by indigenous tenants, the remainder international. Shop Street has the lowest vacancy rate of all the regional high streets, standing at 4%. Similar to the other regional centres, retail units on the street are largely dominated by comparison goods, which account for 84% of occupied stock. Within the comparison goods category, Clothing and Footwear absorb a notable volume of units, 30%. IT/Gaming units account for 16% of total stock. Cruises Street in Limerick, comprising of a total of 29 units, has a notably high vacancy rate of 21%. Indigenous tenants account for 30% of occupied units while international tenants absorb 70%. The majority of retail units comprise comparison goods, 91%. Furthermore, of the volume of comparison good units, clothing/footwear accounts for a significant 43%. In addition to this, the IT/Gaming sector accounts for 13% of total units. 9 June 2013 Irish Retail Market Review

10 Outlook The retail market continued to experience volatile performance during the opening half of High street rents in regional centres remain under pressure as a result of on-going trading difficulties in the form of store closures and the expiry of leases. Nonetheless enquiries from new retailers have emerged, while the convenience sector has seen a number of expansion plans announced. However the outlook for the remainder of the year remains challenged with limited uplift in rental levels in the short term due to the challenged indigenous economic environment. That said, some unique opportunities in the prime markets may result in positive rental terms for large floor plates over the next twelve months. 10 June 2013 Irish Retail Market Review

11 AuTHORS Marian Finnegan Chief economist, Director Research +353 (0) marian.finnegan@dtz.ie Siobhan Moloney Research Manager +353 (0) siobhan.moloney@dtz.ie Tanya Duffy Research Assistant +353 (0) tanya.duffy@dtz.ie 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 Dublin, 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 217 offices in 53 countries. This report should not be relied upon as a basis for entering transactions without seeking specific, qualified, professional advice. It is intended as a general guide only. This report has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. While reasonable care has been taken in the preparation of the report, neither Sherry FitzGerald nor any of directors, employees or affiliates guarantees the accuracy or completeness of the information contained in the report. Any opinion expressed (including estimates and forecasts) may be subject to change without notice. no warranty or representation, express or implied, is or will be provided by Sherry FitzGerald, its directors, employees or affiliates, all of whom expressly disclaim any and all liability for the contents of, or omissions from, this document, the information or opinions on which it is based. Information contained in this report should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ Sherry FitzGerald. 2013