With sales rising, rents falling and consumer sentiment steady, a new study suggests the worst is over for the retail sector, writes JACK FAGAN
A NEW REPORT by Jones Lang LaSalle confirms that the retail sector was hardest hit during the economic downturn with capital values falling by 59 per cent from their 2007 peak.
The study, in the Irish Property Index series, shows that the retail sector fared worse than either offices or industrial properties because of its almost total dependence on consumers and their ability and willingness to spend money.
“However, recent market and economic trends from a number of sources now indicate that while retail property may not have yet reached the very bottom of the cycle, the pace of decline has slowed considerably,” according to Dr Clare Ericsson, head of research at JLL.
New research by the international agency indicates that Ireland is one of seven EU countries which are forecast to record positive retail sales growth in 2010. Ireland ranked higher for year-end retail sales growth than many core European countries with a strong history of retailing, including the UK, France, Germany, Spain and the Netherlands.
Stephen Murray, director of JLL’s retail agency, said that feedback from retailers confirmed the beginning of like-for-like annual sales growth in recent months after a depressing series of declines.
This was borne out by the latest retail sales index from the CSO which showed a positive turnaround in the figures for April, 2010 – the volume of retail sales increased by 6 per cent and the value of sales rose by 1.6 per cent over a 12-month period.
Murray said the latest figures were long overdue and showed a positive change in trends given that the annual performance of the value and volume of retail sales had almost always been falling since the end of 2007. The report says that falls in prices, as shown by the CSO’s Consumer Price Index, had been steadily easing since the deflationary low of -6.6 per cent in October 2009 and had nudged upwards to just -1.1 per cent in May, 2010.
“This slow, but steady return to positive inflation in the economy is a tangible indication that consumers are returning to the shops and starting to spend again,” said Dr Ericsson.
She said this trend may well be set to continue as a survey published by the ESRI/KBC indicated that consumer sentiment remained steady and consumers were more positive about their “future financial situation, the economic outlook and employment expectations”.
Another key consumer market watch survey – the AIB/Amárach Recovery Indicator – reported that four out of 10 people believed the worst was over for the Irish economy and consumers were starting to spend more and save less.
Murray said that the improved market conditions, when combined with increased flexibility on the part of landlords, was resulting in an increase in new lettings.
The nature of the flexibility was a trend towards shorter leases with base and turnover rents and extended rent-free periods or other incentives to assist expanding retailers.
In addition, retailers who had weathered the downturn over the past two years were starting to avail of the opportunity to secure further stores on 2010 terms with the effect of reducing their average group outlet costs.
