Inflation was a key feature of the Irish economy in 2022 and this continued in 2023, with rising prices impacting retailers and consumers alike. We also saw a surge in interest rates during the past year and with these factors in play, one may have expected to see a slowdown (or even a meltdown) in the Irish retail property market.
However, the market however remains alive, well, and apparently in rude health. The unprecedented spike in vacancy levels caused by numerous Covid-19 retailer casualties has been aggressively reversed, with many of our leading shopping destinations, whether high street, shopping centre or retail park, now at or approaching full occupancy.
The negative background noise emanating from largely lazy and uninformed commentators predicting the demise of physical retail in favour of purely online retail has proved to be wide of the mark.
What is driving the market here? The retail market is like any other market with supply and demand forces being the central dynamic. There is a real depth when it comes to the demand side, as evidenced this year with multiple new international retailer entrants from a wide geographical spread including brands from the USA, Canada, China, UK, France, Denmark, Germany, Sweden, Brazil and Portugal, among others.
Why is Ireland and Dublin in particular, seen as such an important retail destination for these new brands and why do we think the market will remain strong? The answer is multifaceted with several factors at play, some of the more important being the following:
Our economic fundamentals, GDP growth, record employment levels and household savings remain the envy of our international peers, with a robust outlook and economic growth forecast of 3 per cent for 2024
• We are not oversupplied in terms of retail space, with little or no new development for well over 15 years. In fact, it could be argued that there are undersupply issues in several catchments.
• The most important retail locations are readily identifiable and limited principally to a compact Dublin city centre retail offering and a small number of the M50 out-of-town schemes.
• Our economic fundamentals, GDP growth, record employment levels and household savings remain the envy of our international peers, with a robust outlook and economic growth forecast of 3 per cent for 2024.
• Global economic headwinds and cost-of-living pressures have unsurprisingly caused uncertainty and impacted many. However, consumer sentiment has been on a broadly upward trend, rising by almost 50 per cent since the low point in September 2022, according to the Credit Union Consumer Sentiment Index.
• Footfall is up across all the main retail destinations, with footfall in Dublin city centre rising by 7 per cent, according to the business lobby group Dublin Town. The main drivers of this have been the return to the office and the spectacular post-pandemic rebound in tourism.
• Although they tend to generate the biggest headlines, occupier demand is not limited to just new entrants and international brands. Incumbents are increasing their store footprints either through opening new outlets or upsizing in existing locations. Domestic retailers are also in expansionary mode, with Dunnes Stores, Penneys, Dubray Books, B Perfect, Home Store + More and Thérapie Clinic being some notable examples.
The litmus test for retail investor appetite will be the outcome of the current sales processes for two of the large Dublin M50 shopping schemes – Blanchardstown Centre and The Square, Tallaght
Against expectations, the retail sector finally re-emerged in 2023 as a bright spot within the overall Irish commercial property market and as a sector has shown its resilience in the face of wider global and market challenges. It was one of the few to show rental growth this year and with pricing having adjusted substantially, investors are increasingly looking to retail, which has made up 25 per cent of overall property investment this year.
The litmus test for retail investor appetite will be the outcome of the current sales processes for two of the large Dublin M50 shopping schemes – Blanchardstown Centre and The Square, Tallaght – with combined price tags approaching €1 billion. If the momentum built up in the retail market continues into 2024 and beyond, the purchase now of either scheme at current pricing levels has the potential, in both the medium and long term, to look like shrewd business.
Eoin Feeney is director of Colliers’ retail division