RETAILMARKET:The world's sixth most expensive street is heading into a period of prolonged change as the more challenging retail environment forces a slew of leases onto the market

SWATCH, THE world's biggest watchmaker, will open its first Irish outlet in the former Vodafone unit on Dublin's Grafton Street later this year, giving the thoroughfare another welcome boost and accelerating its transformation into a more high-end shopping destination.

Over the past couple of years Grafton Street's array of tatty shops has attracted widespread criticism and prompted Dublin City Council to impose stringent planning guidelines limiting the spread of certain retailers.

But the world's sixth most expensive street, with Zone A rents above €8,611 per sq m (€800 per sq ft), is also thought to be heading into a period of prolonged change as the more challenging retail environment forces a slew of leases onto the market.

At the moment there are at least five shops up for grabs and industry sources claim that figure will increase substantially when a number of rent reviews, which have been held over from 2006 and 2007, are resolved. It's thought the subsequent surge in rents will encourage a number of businesses to exit the street.

Warehouse, the UK's women's fashion chain, has become the latest high-profile brand to put its lease on the market. The company is due to move into a much larger store at the nearby South King Street development at the end of August and wants to offload its lease on 37 Grafton Street before relocating.

Selling agent Aiden McDonnell of Colliers Jackson-Stops is seeking key money of €400,000 on the narrow, four-storey over basement property, which has a selling space of 102sq m (1,100sq ft) and an annual rent of €380,000.

Although the shop's lease expires next year, McDonnell insists the new tenants will "probably be in a position to negotiate a favourable deal".

Warehouse is a sister brand of the UK shoe retailer, Nine West, and is owned by the vast Mosaic group, which controls a string of high street names, such as Karen Millen, Coast, Hobbs, Whistles and Oasis.

When it first emerged last year that Warehouse would trade alongside Zara and H&M at Joe O'Reilly's South King Street scheme, it was widely anticipated that Mosaic would retain Warehouse's Grafton Street outlet for one of its many brands, as it is notoriously difficult and expensive to acquire property on the thoroughfare.

But that situation appears to be changing. Mosaic now has two leases on the market with Nine West's shop at 83 Grafton Street up for sale since March. And while it is understood the property has attracted at least four different parties, the sticking point appears to be the key money. Nine West, which is also represented by agent Colliers Jackson-Stops, was originally seeking under €1 million for the lease but industry sources claim the target is now around €700,000.

It is also speculated that Nine West's decision to exit Grafton Street was motivated by an impending rent review. At present the annual rent is €359,500 but that figure is expected to soar to around €650,000.

While the Mosaic group has plenty of financial firepower to deal with such hefty increases, many in the industry believe smaller businesses on the street could struggle to cope with rising overheads in today's weakening economic climate.

According to one source, the smaller retailers are "hurting on two fronts. The first is the Zone A rating system, which means that a 900sq ft shop could be paying a rent of €500,000, which is completely unsustainable. And the second is the competition from the major fashion multiples such as Zara, H&M and Penneys. These brands are selling clothes at margins many retailers just can't compete with."

Savills HOK's head of retail and the company's chairman, Aidan O'Hogan, claims that premiums will be the first casualties of the deteriorating sales environment. He points out that key money usually reflects "economic buoyancy" and predicts the high premiums that have been such a feature of the market for the past five years, particularly on Grafton Street, will fall off "significantly".

Yet Natalie Brennan of CBRE argues that demand remains strong for any property on Grafton Street and points to the Swatch letting as evidence that new names are still clamouring to move onto the premier thoroughfare.

The Swiss brand is paying a passing rent of €243,000 on the 35sq m (377sq ft) property at 55 Grafton Street. The building is owned by the ESB pension fund and the 35-year lease dates from December 12th, 1980.

CBRE acted for Vodafone in the deal, while Lisney represented Swatch.

Swatch's arrival will pre-empt the much-anticipated opening of Brown Thomas's new 743sq m (8,000sq ft) fine jewellery and watch hall, scheduled for the end of November.

The upmarket department store is splashing out €15 million on capital expenditure this year with a major refurbishment underway in its men's department, which is expected to be completed by the end of September.

According to Brown Thomas's marketing director, Moira Murphy, the new jewellery department will also feature a luxury gift offering.

But one retail expert claims the department store's shift towards ever more exclusive names is a strategy designed to weather the economic downturn, as "in tough markets it's the top and bottom ends that survive".