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The tiger finds its feet again

The tiger finds its feet again

The Republic of Ireland – the economic ‘Celtic Tiger’ – is bouncing back from recession and its property market is showing that there are better days ahead.

At the low point of the Irish economy in 2012, an estimated 345,000 people – around 15% of the workforce – had lost their jobs because of the recession.

However, since then more than 100,000 have got back into work, and this boost to spending power is now feeding through into a resurgent Irish retail market.

Recent research by Savills suggests that the beneficial effects of falling unemployment will make a significant mark on retail property in 2015.

“I think last year was the year in which we saw the first signs of real recovery,” says Larry Brennan, Head of Commercial at Savills. “Last year we saw a real growth in retail sales, on the back of improved employment: genuine economic growth.”

A good leading indicator for this upward trend is central Dublin, where the prime shopping strip is Grafton Street. Following lettings in November at 57-58 and 23 Grafton Street to Life Style Sports and Claire’s Accessories respectively, the street is now fully let.

There is more competition for units throughout the city centre, with overseas retail giants like Hugo Boss and Inditex thought to be considering Dublin openings, while incumbent retailers are talking about expanding. And US brands such as Hollister, Abercrombie & Fitch and Michael Kors have all taken space at Dublin’s Dundrum Town Centre.

Last year we saw a real growth in retail sales, on the back of improved employment: genuine economic growth

However, nobody is getting ahead of themselves: employment levels are still well below the 2007 high.

Job insecurity has led people to save rather than spend and this was reflected in retail rents. Prime zone A retail rents fell by 60% from their 2008 peak, and footfall plummeted.

From such a deep trough, it takes more than a few nice Dublin deals to convince property retail investors to re-enter the market. Yet there are now increasing signs of a retail revival spreading into the rest of Ireland as well.

For a start, Ireland is officially the best performing economy in the EU with GDP increasing by 7.7% in the 12 months to June – the fastest growth rate since 2006.

And people appear to be increasingly willing to make big spending decisions again, in areas such as automotive and home improvements. Furniture and lighting sales were up 28% year-on-year in Q3 2014, and car sales shot up from 71,348 in 2013 to 92,361 in 2014 – a 29% increase.

From disposable earnings and retail sales to consumer sentiment, almost all indicators were positive at the turn of 2014-15 (see table, right). If the stats are anything to go by, wallets in deep-freeze are now thawing out at last.

There are positive glimmers on the ground. “We’ve started seeing positive sales growth on a national basis,” says Brennan. “And we’ve started to see specific locations outstrip those too.”

This obviously includes city centre Dublin, but it also includes prime shopping centres, as well as Cork and Galway city centres.

In fact, shopping centres have fared better in many respects than high streets, according to Brennan, who lauds the active role played by landlords in keeping mall vacancy relatively low under testing circumstances.

This, he said, is now feeding into an uptick in investment volumes for Irish malls.

“One of the remarkable features of the retail market in the downturn was that occupancy levels in shopping centres remained strong.

“You found ways of dealing with problems. So the income levels weren’t necessarily there, but the lights were on.”

It has whet the appetite of active investors who see the management opportunities in buying centres on the cheap, then enjoying rental uplifts as the economy recovers.

One such investor is US hedge fund Värde Partners, who has played a big role in picking up distressed portfolios from banks in the UK that are deleveraging.

It bought the Acorn Portfolio of shopping centres in July last year for €170m – 30% above the initial asking price – from Ireland’s National Asset Management Agency. This was the first significant post-crisis deal in Irish shopping centre portfolios, and has since been followed up by the €130m sale of the Spectrum Portfolio – also to Värde.

A big US firm investing this deeply suggests not only that retail property pricing has bottomed out and things can only get better, but that heavyweights believe a retail recovery is sustainable.

For further evidence, there are signs that retail development is finally looking more attractive.

Perhaps it is unlikely that a shiny new shopping centre will get off the ground any time soon, but smaller-scale options are back in vogue. Specifically, Brennan points towards infill retail developments in city centres and shopping centre extensions.

The former has already proven successful in Dublin, where several new flagship stores have opened in the city centre. These include Nespresso on Duke Street and H&M’s new
unit in the former National Irish Bank headquarters on College Green.

“There is infill development potential,” says Brennan, “because of limited availability in city centres. People will be activating on smaller sites.”

Shopping centre extensions will also figure highly in the minds of retail owners during 2015, as incremental improvements look less scary than wholesale redevelopments do.

Green Property recently re-lodged plans for a 340,000 sq ft extension (known as Yellow Mall) at its Blanchardstown Centre. And at Hines’ and HSBC’s Liffey Valley, work is expected to start on the “Western End Redevelopment” extension within the next year, bringing restaurants and a cinema to the centre.

These are baby steps in many ways, but development happening has to be a good sign: most development was unthinkable in 2012 as occupiers of all kinds went back into their shells.

And bolder moves await. Hines, for example, is working up separate proposals for a much larger residential-led redevelopment at Cherrywood, South Dublin. This has a retail-focused town centre, surrounded by thousands of new homes. It bought the 400-acre site out of receivership in November, and is understood to be wasting no time in bringing a scheme forward.

Such major players as Hines and Värde having spent last year cleaning up after calling the bottom of the Irish retail slump is a good sign. And it’s not just Dublin: Värde’s purchases include retail in Cork, County Louth and County Tipperary.

Going into 2015, it appears that Ireland’s recovery should turn out to be much more than a tentative glimmer in Dublin city centre.

Assuming no domestic policy or international shockwaves come its way, the hope is that an improved jobs market will continue to tempt people back to stores in ever greater numbers. It may not yield a Celtic Tiger of the same proportions, but Ireland has certainly found its feet again.