MarketAnalysis:A new analysis of the retail market suggests that, as growth in the economy moderates, it's likely that the years of rapidly rising rents may be at an end

A gradual ease-back in the strength of consumer spending is expected to impact on the retail market here and this is likely to affect rent reviews and lease terms, according to a new analysis prepared by DTZ Sherry Fitz-Gerald.

The Irish Retail Market 2007 report provides a useful overview of the economic impacts on the retail property market.

It indicates that, while the growth of the economy in the coming months and into 2008 looks good, "the pace of expansion is beginning to moderate, a factor which will begin to impact the retail market.

"In particular, growth in the volume of consumer expenditure is expected to ease somewhat, impacting retailers' profit margins and subsequently future expansion plans, causing many to become more selective when choosing the location of new outlets," the report states.

At that point, prospects will (to a large extent) depend on where the accommodation is available, the report suggests.

Areas where there are high levels of accommodation may find it increasingly difficult to secure occupiers, raising issues for future development.

The review takes a largely positive view of the retail sector here.

"Following two years of phenomenal growth, the Irish retail market remains very robust," states the company's chief economist Marian Finnegan. "That said, the persistence of significant disparities in the spread of accommodation per capita in both the shopping centre and retail park markets is worrying for some locations, in particular for future rental performance."

An indication of what could happen comes from anecdotal evidence from the UK market. When the housing market slowed there, significant change in the lease structures sought by many retailers followed.

These changes could be afoot here already, the review suggests.

"It is becoming more prevalent in Ireland for retailers - particularly DIY and electrical retailers - to look for rent increases indexed to the CPI rather than market rents, rent reviews capped and in some instances linked to turnover," it states.

"Similarly, retail occupiers in shopping centres are following the lead from the UK, seeking more flexible lease terms and break options, together with fixed rent increases and turnover-based deals. Irish retailers will have more negotiating power now than in the last five years, given the stronger levels of supply."

The DTZ Sherry FitzGerald review indicates that the market showed strong development activity throughout 2007.

For the year as a whole, completions in both the retail park market and shopping centre market are expected to total about 330,000sq m (3.552 million sq ft). This will bring the total stock of accommodation in the retail park market to 1.02 million sq m (10.979 million sq ft) and the stock of shopping centre space to 1.73 million sq m (18.622 million sq ft) by the end of December.

Construction activity in both markets is set to remain strong in the medium term with very large quantities of space in the development pipeline.

"The persistence of significant disparities in the spread of accommodation per capita however, could suggest worrying trends in terms of over-supply in some locations with a correspondingly damaging impact on rental performance," the report states.

The retail park market in Ireland is relatively young with almost two-thirds of all accommodation developed since the beginning of 2004. Based on the 2006 Census figures, Sligo had the largest proportion of retail park space per thousand of the population at the end of August at 754sq m (8,116sq ft). This was closely followed by Louth with 733sq m (7,890sq ft) per thousand.

The average level for the state stood at 231sq m (2,486sq ft) per thousand. Dublin was just below this ranking eighth with 230sq m (2,476sq ft) per thousand while, interestingly, Cork ranked 19th with only 138sq m (1,485sq ft) per thousand of the population.

The shopping centre market has also seen strong development activity in recent years with a quarter of all accommodation built since the beginning of 2005, according to the report.

A comparison of the density of shopping centre accommodation across counties relative to the population reveals that, once again, Louth had the highest proportion of space at the end of August with 962sq m (10,355sq ft) per thousand. This was followed by Carlow with 566sq m (6,092sq ft) per thousand of the population while Dublin ranked third with 565sq m (6,082sq ft) per thousand.

From a regional perspective, Dublin has the highest proportion of space relative to the population with the lowest density of shopping centre accommodation in the west at 210sq m (2,260sq ft) per thousand of the population.