MANY major shopping developments in the pipeline will remain on hold for between five and 10 years because of current trading difficulties, according to a report on the Irish retail market by Colliers International.
Aidan McDonnell, head of retail at the estate agency, said the combination of a lack of liquidity, a substantial fall in rent levels, new upward/downward rent review legislation and the running out of yields to nearly double peak levels had resulted in a substantial decline in retail investment values since 2007.
The scarcity of competitive finance that exacerbated the decline in values had left the market devoid of a sufficient number of investment transactions to indicate a trend.
“The problem is that with so many investments highly leveraged, the current market prices are often below bank gearing and hence there is little product available at realistic levels.” McDonnell said there were indications that the market was bottoming out, where international and cash rich Irish investors were looking again at retail investments in Dublin on the basis of good returns in terms of yields and future growth prospects.
He said a number of national and international shop chains had fallen victim to the recession while other “remain perilously close”.
While last year many landlords acted like rabbits caught in full headlights, this year they were reacting more rapidly – either letting empty properties at very realistic terms or “parking” their premises by creating short lettings at extremely competitive rents.
To hook tenants with desirable covenants, landlords commonly had to offer one year rent-free or cash incentive packages in prime city centre locations and sometimes considerably more in shopping centres.
Risk-free turnover rent leases were becoming commonplace and had even reached the prime high streets.
Leases of 10 years or less, with break clauses, were now the norm. Landlords were also giving tenants “accommodations” on rents for up to two years, where the passing rent had become too high a burden in relation to the turnover the retailer could achieve
McDonnell said that with rents now back to 2003 levels and leases less risky – upwards/downwards, shorter terms, breaks etc – retailers were striking excellent deals at realistic levels and were prepared to take up opportunities once more.
One unfortunate outcome of the current financial crisis was that while most current rent reviews were settled at nil increases, similarly-sized shops were being let at substantially less rent, often with handsome incentives.
