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FLUSH IRISH ECONOMY SPARKS RETAIL SPACE SHORTAGE

By Barbara Hogan Galvin

Ireland continues to revel in a growing economy, scant unemployment and booming retail sales. But, partly because of this boom, retailers now face some hurdles.

Economically, things have never looked better in Dublin. Irish merchants are flourishing as competition from many large U.K. based-chains has tapered off. The fixed exchange rates of European Monetary Union (EMU) have made trading among other European countries easier, and Ireland is now welcoming new retailers to its market, such as fashion merchants Mango and Benetton and grocery chains like German Lidl.

“Because Ireland is trading so well, we’re seeing an increased level of interest from European retailers,” said Cormac Kennedy, associate director of retail development at the local office of commercial property firm Insignia Richard Ellis Gunne. “In the coming years, we expect to see a lot more European and American companies coming over.”

But the country may actually be a bit too prosperous, at least for some in the retailing industry. Ireland has the fastest-growing economy in the European Union, posting a 9% growth rate of its gross national product last year, and these enviable economic conditions have left retail space in very short supply in Dublin, Cork and elsewhere. And while developers are scrambling to accommodate the boom with new projects, the government has initiated stringent restrictions on big-box projects and superstores to protect inner-city merchants.

Further complicating things for retailers, the country’s prosperity has led to a substantial shortage of employees willing to work in the retail market. As the technology sector has taken off and pushed unemployment rates down to less than 5%, retailers are finding it difficult to staff stores, observed Hugh Markey, director of Dublin-based property consultant firm Lisney.

A number of factors has fueled these conditions, one of them being the euro. Five years ago, local retailers faced stiff competition from large U.K. chains. However, England has so far opted out of the common currency, and the weakness of the Irish pound compared with the British pound is affecting those U.K. retailers that operate on tight margins. Furthermore, some British retailers, including long-established chains like Marks & Spencer, are struggling. Reduced margins, pricing issues and a loss of repatriated profits have resulted in a slowdown in the expansion of U.K. chains, opening a door for homegrown retailers, who have seized the opportunity to take part in the retail boom, leasing professionals say.

Local merchants such as Avoka Handweavers, which sells Irish clothing and crafts, fashion retailers Sacha and Pamela Scott, sportswear retailer Champion Sports and home-improvement chain Atlantic Home Care have all “blossomed” in recent years, Markey said.

“Irish retailers are very competitive and very capable; I think that many U.K. retailers have underestimated their ability,” he said.

But finding places to grow has been a problem. Dublin’s prime shopping street, Grafton Street, has seen rents skyrocket in the past three years as the market has gotten tighter. Since 1994, the cost of doing business on the popular avenue has nearly doubled, from just over $1,725 per square meter (10.6 feet) to nearly $3,335 per square meter, according to data from Insignia.

Despite the prime location, the stores are small and the buildings old, falling short of the standards some international retailers demand, Markey said.

The city does include two urban centers — Jervis Street Shopping Centre (330,000 square feet) and Ilac Shopping Centre (220,000 square feet) — but the demand for space has prompted the development of two more, Millennium Mall (185,000 square feet) and Moore Street Mall (300,000 square feet), which are scheduled to open in 2003.

Currently the Dublin region is home to only three regional malls. The largest, The Square of Tallaght, is 450,000 square feet. Blanchardstown Shopping Centre is approximately 400,000 square feet, and Liffey Valley Shopping Centre is 250,000 square feet. Another new center, The Pavilion, in the suburb of Swords, is scheduled to open with 275,000 square feet of retail this year, and Dundrum Town Centre is planned for an autumn 2003 opening in South Dublin, with 500,000 square feet.

Even with this additional retail, the market remains very tight, according to Kennedy, and since shopping centers can take anywhere from five to 10 years from the time plans are submitted for government approval until the doors open for business, some experts worry that international retailers might pass up the country in favor of larger markets.

One retail sector that was dealt a substantial blow this February is big boxes. The country’s commercial planning authority, An Bord Plean‡la, issued its Retail Planning Guidelines, countrywide mandates that will be applied to all retail planning applications received from this year onward.

Among other restrictions, the guidelines have set a maximum limit on the size of any single retailer in the Dublin area at about 63,600 square feet, with no retail warehouse center to exceed approximately 160,000 square feet.

The main objective of the guidelines, according to the government report, is, “to support the continuing role of town and district centers. In order to achieve this objective, the preferred location for retail development should be within town centers. If there are no development sites within town centers, the next preference should be at the edge of town and only failing this should out-of-town centers be contemplated.”

In addition, supermarkets in the Dublin area are capped at a footprint of about 37,100 square feet and at 31,800 square feet elsewhere in the country. These restrictions on new projects will likely lead to the redevelopment of the country’s existing shopping centers to make them acceptable to international and leisure tenants, Kennedy said.

While this ruling may prevent the big-box craze from ever taking off in Ireland, the country is making way for the Morrison Outlets Rathdowney, a 100,000-square-foot designer outlet center, Ireland’s first. The center is scheduled to open this September in Rathdowney, about halfway between Dublin and Cork.

Outlet centers have been talked about in Ireland for years, but planning restrictions always held back development, said Larry Brennan, director of retail at Dublin-based leasing agency Hamilton Osborne King.

“It was never a question of a perceived market, but a question of actually getting it off the ground,” he said.

The location of the outlet center, about 90 minutes from both larger cities, avoided any protest from retailers concerned about the discount competition, he said. The center, developed by Morrison Developments, London, was more than 25% leased as of February, with anchor tenants taking about 7,000- to 9,000-square-foot spaces. Brennan would not disclose the tenant mix.

As the first manufacturers’ outlet in the country, the leasing team has found itself educating tenants on some practices unusual in the retail market in Ireland, such as short leases (five years) and percentage rent, Brennan said.

As successful as this center may become, Brennan said he doesn’t see it touching off an outlet trend, simply because of the country’s small size. Due to its size, Ireland still must work hard to convince some retailers of its potential, even as it continues to boom, experts said.

“One of the main challenges we have here in Ireland is getting [retailers] to look at us,” Brennan said. “It is still considered quite a small [trading area], and where a chain might be able to come in here with 10 stores, they could do 110 in Spain or Germany.”

Markey concurs. “For [retailers] looking at a map for expansion, Eastern and mainland Europe can be much bigger and more desirable in terms of distribution and trading networks.”

Hot international retailers such as Gap, Banana Republic, Hennes & Mauritz, Sephora and Zara are not yet represented — a significant hole in the country’s retail mix, Brennan said.

However, Ireland’s small size (population 3.6 million) could work in its favor for attracting retailers interested in testing the larger U.K. waters, Brennan said.

 

 

 

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