Irish retail rents are expected to rise by between 7% and 10% over the next two years, according to a new report from Savills.
John McCartney, director of research at Savills Ireland, said: “Rents in some prime shopping locations have already risen by more than a third over the past three years. As the retail economy transitions from its early recovery phase to a sustainable growth phase, base effects are going to dampen the annual percentage increase in rents.”
According to MSCI data, rental growth on Grafton Street in Dublin eased from 21.8% pa in Q1 to 19.2% in Q2. However, as predicted by Savills’ econometric model, rental growth slowed more sharply to 14.1% in Q3.
Savills’ report identifies a notable softening in some short-term indicators such as retail sales, VAT receipts and consumer sentiment over the past year.
However, rather than reflecting underlying weakness in the economy, Savills believes this derives from base effects and, perhaps, the temporary impact of political uncertainty on consumer confidence.
The research shows that employment is by far the strongest leading indicator of retail rents in the long run. With jobs growth of 2.9% in the past year, retail rents are therefore expected to continue rising, although at a slower pace.
Savills’ econometric model forecasts rental growth of just under 10% in Grafton Street by Q2 2018 while, in less prime markets, rents should rise by around 7%.
Larry Brennan, director of retail at Savills Ireland, reports that demand from international retailers remains strong, evidenced by the forthcoming openings of & Other Stories and Victoria’s Secret on Grafton Street, in addition to the new Top Shop flagship store in Jervis Shopping Centre.
Smaller premium fashion and speciality stores are in large demand in the Dublin 2 area, while food lettings are also continuing throughout Dublin city centre.
The food sector has dominated the recent letting activity in the suburban malls with occupiers including Five Guys, Cosmo, Prezzo and Milano pursuing opportunities.
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