Two-tier retail property market set to continue

A two-tier retail property market is expected to become more prominent this year, but further improvements in rent conditions are also likely.

According to property agent Savills, the two-tier market — where longer-serving retailers remain exposed to legacy rents and upward-only reviews while new entrants benefit from lower rents and more flexible lease terms — which has been evident for the past three years is likely to continue.

This pattern has helped attract large international retail names like Abercrombie & Fitch and Superdry to Ireland in recent times, Savills noted, adding that the influx of new market entrants will continue “as international retailers focus their attention on Ireland”.

“However, their interest lies predominantly on prime high street and shopping centres, where vacancy rates are low,” it added.

Savills made the comments in its first quarterly retail property market outlook of 2014 yesterday.

Overall, Savills sees positivity returning, with economic conditions getting better and rent conditions continuing to improve in prime shopping areas and high streets (although, not so much in secondary locations).

“All of the key economic indicators are now pointing to an improvement in retail conditions,” said John McCartney, director of research at Savills Ireland.

“Disposable incomes have stabilised, sentiment is gradually improving, and the savings ratio has once again dropped below the EU average.

“This indicates that consumers are finally beginning to regain their confidence.

“Disposable incomes per person are up to 20% higher in Dublin than in other regions of the country.

“This is leading to the emergence of a two-tier market, with most retail activity concentrated on prime high streets and shopping centres in Dublin.

In contrast, vacancy rates remain elevated in some provincial towns across the country.”

While rents on some of Dublin’s prime retail streets have declined by up to 60% since the boom, Savills said that they are now beginning to show signs of stabilisation.

“Rents in prime locations are expected to stabilise and grow in certain locations, due to increasing demand and limited stock.

“However, this trend will not be apparent in secondary locations, where rents will continue to soften and further tenant incentives will be offered to entice retailers to take up space,” it said in its report.