Published in Property Week, August 2020
Retail is one of the industries that has borne the brunt of Covid-19. As the pandemic took hold, shops across the world pulled their shutters down – some temporarily, some, unfortunately, for good – and Ireland was no exception.
Now, retailers are starting to count the cost of the pandemic. While few have dared estimate the value of lost sales, the figure will no doubt be eye-watering.
But despite these huge losses, green shoots have started to show themselves in the Irish market in the weeks since non-essential retail reopened in mid-June.
So what is the state of play on the Republic of Ireland’s high streets, in shopping centres and on retail parks? And who is looking to take vacant space?
As in the UK, Irish high street footfall has been badly hit – particularly in Dublin and Cork, where the likes of Grafton Street and St Patrick’s Street rely heavily on tourists.
“Footfall has dropped by as much as 50% in some areas and the cost base of many businesses is now way out of line with the trading reality,” said Arnold Dillon, director at trade body Retail Ireland, in a statement in mid-August.
Suburban high streets are performing slightly better than city centres because so many people are working from home, but Karl Stewart, head of retail at Cushman & Wakefield Ireland, worries that this is a “false economy” that could correct itself later on.
Footfall has dropped by as much as 50% in some areasArnold Dillon, Retail Ireland
There have already been significant retail closures, the most high-profile of which was Debenhams’ liquidation of its Irish business on 9 April. The department store chain closed five stores in Dublin, Cork, Limerick, Galway and Waterford.
However, liquidator KPMG says an unnamed retailer is interested in taking over some stores and keeping on the staff.
Stewart, who is acting on some Debenhams sites, is positive about the enquiries received. “There are enough people to be discussing with,” he says.
Oasis and Warehouse Group entering administration in June resulted in 13 Irish stores and
29 concessions closing, while Laura Ashley’s collapse resulted in six closures and Cath Kidston’s two. Chains such as Monsoon, Urban Decay and Topman have also closed individual stores in the wake of Covid-19, as have many independents.
Less exposed than UK
But experts say Ireland is less exposed to failing retailers and excess floorspace than the UK. “We haven’t seen the same number of closures as the UK, but there is an awful lot of noise about restructuring and that is going to make it difficult considering where we’re at in the cycle,” says Stewart.
Despite the wider gloom, some interesting lettings offer a glimmer of hope.
Nasdaq-listed sportswear retailer Columbia signed for its first-ever Irish store two weeks before lockdown and opened the 1,300 sq ft shop on Trinity Street in Dublin city centre on 4 July.
“They’re not concerned about Covid, because outdoors products are doing really well,” says Jenny Donnelly, associate at QRE, who acted for the landlord on the deal.
Another bold move is Vodafone’s decision to open its first Irish ‘experience store’, a deal signed in early June. It will exit two existing locations on Dublin’s Henry Street and move into a larger 6,800 sq ft unit. Inditex-owned Pull & Bear will leave that store and upsize to a 14,000 sq ft store on Mary Street, with both opening later in 2020.
Vodafone hopes the experience store will capitalise on the brand’s digital presence, allowing customers to try out products they have seen online.
Irish shoppers have traditionally been less keen on online shopping than their counterparts in the UK and Europe – but lockdown may have changed their minds. Parcel delivery company DPD Ireland made 730,000 deliveries per week in May and June, up more than 100% on the previous year.
The growing penetration of online shopping in the Irish market was also a motive for Columbia’s Irish debut.
“They had a huge online presence in Ireland and needed a store where people could see the products and get that brand experience,” says Donnelly.
Away from the high street, shopping centres in Ireland reopened on 15 June and footfall numbers look pretty solid.
Shopping centres recovering
“High streets aren’t doing so well, but centres are doing OK,” says Declan Stone, managing director of Colliers International in Ireland, adding that footfall is now back up to 85% of the normal level at some locations.
What has changed more dramatically is dwell time. “You don’t have the cinemas, bars, restaurants and all the things that make it a nice experience,” says Stone. “People are looking at a product online and then going into a centre, buying it and leaving. There’s no browsing.”
Nevertheless, even in the troubled world of department stores a handful of deals have successfully completed. Brown Thomas agreed a deal for a new 63,000 sq ft flagship at Dublin’s Dundrum – the largest shopping centre in Ireland – in February.
Landlord Hammerson confirmed to Property Week that this is still going ahead on the same terms, albeit with a slight delay in opening due to lockdown. It will replace two floors of the former House of Fraser in the centre.
Stewart says some retailers are still in the market for shopping centre space, mostly in the value and essential goods sectors.
“TK Maxx is a strong one, Boots did quite a lot during Covid and we also work for Dealz [Poundland’s Irish brand], which took four or five new stores during Covid and trades very, very well,” he says.
“Sports Direct is doing stuff, albeit the deals are very competitive from their perspective, and Penneys [Primark’s Irish brand] is looking at a few things.”
Irish retail might be helped by the fact its excess retail space, while significant, is not at the same level as the UK. “We don’t have quite the same amount of retail floorspace and the same oversupply as the UK,” says Stewart. “A lot of our shopping centre stock was developed from the early 1990s onwards, so it’s still fairly modern.”
Retail parks bounce back
Retail parks are also reported to be trading well. “They have out-of-town locations and are outdoors,” says Donnelly. “An investor looking to the future might think: ‘If this happens again, retail parks will be able to come back much quicker than other locations.’”
In July, perhaps buoyed by people’s zeal for home improvement during lockdown, Scandinavian homeware store Jysk signed a deal for its first Dublin store at Gulliver’s Retail Park. The store will open by the end of 2020. Jysk will also open in Sligo this year and plans to expand from seven stores to 20 in Ireland by the end of 2021.
Also in July, interiors store Harvey Norman opened a huge new flagship on the Gateway Shopping Park in Knocknacarra, County Galway.
Another business that boomed during lockdown is sportswear retailer Decathlon, which “has opened its first store in Ireland and [wants] eight more around the country”, according to Stone.
Bigger-box retailers remain acquisitive, both because the types of products they sell are more pandemic-proof, but also because they do not want to pass up on opportunities.
“For retailers that need 15,000 sq ft or more, there isn’t really the supply out there so we haven’t seen widespread abandonment of 18- to 24-month acquisition strategies,” says Stone.
There will be rent corrections, particularly in prime locationsJenny Donnelly, QRE
Supermarkets are also on the lookout for space. “Aldi and Lidl are still acquisitive and there is an awful lot of activity in the supermarket space among Tesco, Dunnes and SuperValu,” says Stewart.
New lettings are a welcome boost, but landlords will need to put equal thought into how they renegotiate leases with existing tenants.“There’s no evidence that rents have come down yet, but naturally they will,” says Donnelly. “There will definitely be rent corrections, particularly in prime locations such as shopping centres where there are a lot of legacy leases.”
The last wave of shopping centre development in Ireland happened before the last recession in the early noughties. Many retailers signed 20-year leases, so there are many 15-year break options coming up in the next few years.
“[These retailers] are on rents that are out of kilter with the market and turnover,” says Stone, adding that savvy landlords will look to “blend and extend” – offering a rent reduction or rent-free period in exchange for the retailer adding an extra few years to their lease.
Turnover rents are another option Stone believes some retailers will be pushing for – something that was on the agenda before the outbreak of Covid-19.
Landlords will need to make compromises, but arguably some can afford to. A number of Irish shopping centres changed hands in the past few years as prices came down, with many being snapped up by foreign private equity players.
“These owners bought them at discounted levels and they have the latitude to weather the storm,” says Stone.
In short, they can afford to make a few concessions to persuade tenants to stay put.
The full extent of the pandemic’s impact on Irish malls, high streets and retail parks will not be fully clear for some time. For now, landlords will be hoping that acquisitive supermarkets, sportswear and DIY brands will plug some of the gaps left by fashion retailers.
With more businesses going into administration or closing stores, it may not be enough to keep some locations afloat, but it should keep the green shoots of recovery growing in others.