CBRE have released their latest Retail Market View publication focussing on trends in the Irish retail market in the year to the end of Q3.
The report says that despite major structural headwinds in the retail sector globally, the momentum in Ireland’s retail sector remains largely positive. Buoyed by a strong economic & demographic backdrop, Ireland’s retail sector continues to perform relatively well with retail spend, footfall and consumer confidence all remaining on an upward trajectory despite underlying concerns around Brexit. While consumer confidence in the Eurozone and the UK has moderated in recent months, consumer confidence in Ireland has continued to move upwards in comparison.
CBRE believe that recent measures announced in Budget 2019 are likely to boost discretionary spending further which should boost retail sales activity in the Irish market over the next 12 months. The sectors consistently performing well include the DIY, Electrical goods, Furniture and Lighting sectors, all of which have been fuelled by increased housebuilding activity and the upgrading of existing dwellings as a result of the housing crisis. CBRE say that it is perhaps not surprising that sectors that have been performing less well include Books, Newspapers & Stationery considering that these sectors are particularly exposed to the long term structural challenges the retail sector is facing. Clothing and fashion also remain challenged.
According to the report, the most discussed structural challenge, or even fundamental disruptor, to the retail sector at present is the growth of E-Commerce. CBRE believes that the rise of online shopping remains one of the most prevailing challenges to traditional bricks-and-mortar retailing the world over and is something that is becoming increasingly evident in the Irish market. Indeed, the Visa Consumer Spending Index for Ireland, as produced by IHS Markit, is indicating further expansion of the E-Commerce sales channel compared to the face-to-face channel, with another 2.4% annual increase in online retail spending in the Irish market in the year to August 2018.
Matthias Duesing, Senior Analyst in the research team at CBRE Ireland, said “Having grown at a fast pace over the last decade, E-Commerce now accounts for approximately 11% of total retail sales volumes in Ireland according to the latest data from Euromonitor. Nonetheless, compared to other European markets, such as the Netherlands (13%) or the UK (17%), the ‘online penetration level’ is somewhat lower in Ireland and the pace of growth has eased in the last year. Having grown at a compound annual growth rate of 7% for the period of 2008-2017, online penetration in Ireland has only grown by about 1% in the last 12-month period. In Ireland’s case, it could be argued that the proficiency of the underlying supply-chain has not kept pace with changing consumer requirements, making the relative convenience of bricks-and-mortar shopping more attractive compared to the rather inefficient online shopping model. This is something that is likely to change over the coming years as increasing numbers of retailers implement in-country distribution in response to consumer demands for shorter delivery timeframes and as a result of Brexit”.
Other Key Highlights from the report include:
- The first nine months of 2018 have been busy in the retail occupier market with several new requirements having materialised from existing and new retailers alike. Leasing activity was very steady throughout the Summer season with particularly strong demand for stores in the better performing high streets and shopping centres.
- Following several years of virtually no new retail development in Ireland, there has been some improvement in supply of late, which has been welcomed by the many retailers with active requirements.
- 23 transactions were concluded in Dublin’s major shopping centres and high streets during the first three quarters of 2018, with eight transactions recorded on Grafton Street and Henry Street in the period. The food and beverage and beauty sectors continue to perform exceptionally well, with these sectors accounting for 13 of the 23 transactions recorded. Meanwhile, 4 of the transactions in Dublin’s major shopping centres and high streets in the first nine months of 2018 were to homeware retailers.
- Although many UK retailers remain under pressure in their home market, this had little or no impact on their Irish operations and there have been several UK retailers expanding their businesses in the Dublin market over recent months. Indeed, 10 of the 23 transactions recorded in Dublin’s Henry Street and Grafton Street and major shopping centres in the year to the end of September 2018 have been UK brands including JD Sports, Rituals, and Next.
- Regional take-up in Ireland continues to be dominated by domestic occupiers.
- Prime retail rents have remained stable over recent quarters with both Grafton Street and Henry Street remaining unchanged from earlier this year at €6,500 per square metre and €4,500 per square metre respectively. Meanwhile, prime rents in Dundrum Town Centre have risen to €4,600 per square metre per annum.
- The latest CBRE’s bi-annual high street vacancy study has recorded falling vacancies in several locations across the country. Five of the nine locations surveyed have seen vacancy rates falling in the last 12 months. The sharpest decrease was observed in Sligo’s O’Connell Street, where the vacancy rate fell by 3.90% down to 17.90%. Although Sligo continues to have one of the highest rates of high street vacancy in the country, an encouraging improvement has been recorded year-on-year. Meanwhile, Galway currently has a vacancy rate of just 0.9%, with just one unit vacant on its prime high streets at the end of Q3. Other markets such as Kilkenny (3.3%), Limerick (7.0%), and Cork (7.8%) have also witnessed a decline in vacancy rates in the last 12 months. The most significant increase in vacancy of the locations surveyed was Waterford. Despite some new letting activity on its high streets, overall vacancy increased by 1.9% up to 7.7% at the end of Q3. Belfast also reported an increase up to 7.6% in Q3 2018. The vacancy rate on Dublin’s high streets also increased slightly to 4.6% in Q3 2018, with vacancy on these streets primarily a result of protracted lease negotiations or ongoing fit-out projects.
- Figures compiled by Dublin’s Business Improvement District demonstrate relative stability in footfall numbers in 2018 with more than 110 million people having visited Dublin’s high streets in the first nine months of the year. This represents a 2% decline year-on-year, although this is mainly a result of bad weather conditions in March 2018, where year-on-year footfall levels dropped by 44% in a single week.
- More than €2.67 billion was invested in the Irish commercial real estate market in the first three quarters of 2018. Of this figure, 13% or €343 million was invested in the retail sector specifically. The largest retail investment transactions signed in the nine-month period included the sale of Westend Retail Park at Blanchardstown for approximately €148 million and the sale of Charlestown Shopping Centre in Finglas, Dublin 11 for approximately €40 million.
- For various reasons, the buyer pool for retail investments has thinned considerably across Europe over recent months leading to a softening in retail yields in some locations. Although several investors are opting to divest of retail assets across Europe, this in turn is enabling other counter cyclical investors to deploy capital into this sector. On the basis that the retail occupier market in Ireland is comparatively strong in European terms and buoyed by healthy job creation, wage inflation, rising house prices and population growth, it will be interesting to monitor the strength of appetite and pricing for some of the retail assets that are currently being marketed, especially those in regional locations.
- At the end of Q3 2018, prime retail yields in Ireland remain stable at 3.15% for high street assets in Dublin, with high street yields in Cork trending at 5.75%. Meanwhile, prime shopping centre yields are trending at 4.75%.