Dublin has emerged as one of the fastest-growing prime retail locations in the world according to CBRE’s latest half-yearly research report, ‘Global Prime Retail Rents’.
The Irish capital secures fifth place on the list, after recording an 10.5pc year-on-year increase in rents for prime retail in the first quarter of 2017. While the rate of growth is significant in itself, it is however some way off the 39.1pc registered by London. The Russian city of St Petersburg takes second spot with rental growth of 15.4pc, while the New Zealand capital, Auckland, and Bulgarian capital, Sofia, take third and fourth positions at 12.5pc respectively.
Referring to Ireland’s retail sector more generally, CBRE says it “remains robust, buoyed in particular by continued job creation, strong tourist activity and demographic changes”. Noting that retail sales increased by 5pc in 2016, the authors add that there is “cautious optimism” surrounding the sector, with continued demand for stores in prime locations expected this year.
CBRE warns however that meeting the potential demand for prime retail space will prove challenging, as many of the better performing schemes and streets are effectively at full capacity.
“Rents for prime schemes will continue to increase as a result of imbalance between supply and demand,” they conclude.
Commenting on the performance and the outlook for Dublin’s prime retail offering, Bernadine Hogan, senior director in CBRE Ireland’s retail team, said: “Demand for quality retail space in Dublin remains robust and the arrival of brands such as Victoria’s Secret and & Other Stories onto Grafton Street has further underlined the importance of these prime shopping destinations. We expect to see some further upward pressure on Prime Zone A rents on streets such as Grafton Street over the coming months.”
While CBRE Ireland’s latest Retail Market View report, published in May, noted the Visa Irish Consumer Spending Index’s finding that online spending experienced annual growth of 18pc while face-to-face spending had dropped by 2.5pc, Ms Hogan said that physical stores would remain an important part of the consumer offering for retailers.
“The retail sector is rapidly evolving and is a highly competitive market, therefore, retail brands must focus on targeting consumers across multiple channels. The physical store remains an important part of the consumer journey and retailers will continue to target prime bricks-and-mortar locations to grow their brand. Stores will also become the place that customers use to interact with physical products and retailers will use to showcase and try innovative technology,” Ms Hogan said.
Demand for prime high streets such as Grafton Street and Henry Street is not limited to occupiers alone with strong investor demand for any high street investments that are offered for sale. In the case of Dublin, there has been close to €442m of investment transactions on Grafton Street and Henry Street since 2013 alone. The largest proportion of these occurred in 2015 when assets such as the ‘Sovereign Portfolio’ traded. This portfolio was acquired by Irish Life for €154.8m.
Irish institutions have been the most dominant buyers of prime high street assets acquiring 62pc of Grafton Street and Henry Street assets since 2013. In recent weeks, CBRE have been involved in the sale to an Irish institution of 100-101 Grafton Street, a unit let to AIB bank for a price reported to be in excess of €50m and have also been involved in the sale of 17 Mary Street to State Street.
Natalie Brennan, senior director in the investment team at CBRE in Dublin partly attributes the strong appetite demonstrated for both of these assets to their long-term rental growth potential.
Outside of Dublin, CBRE also includes Belfast on its list of ‘fastest growing locations’. The report cites the regeneration of the city’s key retail locations over recent years and points to its popularity with shoppers from across the border.
“This international footfall increased heavily following the UK’s decision to leave the EU, as shoppers travelling north of the border look to take advantage of the weaker currency exchange rate and purchase retail goods at a cheaper price,” the report states.
Commenting on Belfast’s prime retail stock, CBRE adds that: “Vacancy rates in Belfast’s prime locations have remained low ever since the rates revaluation that occurred in 2015. A lack of supply, coupled with strong demand, is likely to fuel rent increases.”
Looking at the wider, global picture for the prime retail sector, CBRE reports that Europe was the only region to register rental growth in the first quarter of 2017 with an increase of 4.3pc year-on-year.
Apart from Dublin, many of western Europe’s other capital cities witnessed strong rental growth which is being driven by lack of supply in prime retail areas. This has led to retailers paying higher rents in these cities to guarantee brand awareness and further support their expansion plans within the region.
Despite rental levels remaining stable quarter on quarter on London’s New Bond Street, the UK capital has also ranked second among the world’s top 10 most expensive retail locations (€1,521 per sq ft per year in Q1 2017) with New York’s Fifth Avenue retaining its position as the world’s most expensive retail destination commanding €2,811 per sq ft per year.
Hong Kong, Paris and Toyko make up the remainder of the top five markets for prime retail rents in the world.
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