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Main street isn’t out of fashion, but fashion may be

The media’s focus on extreme cases, and invalid comparisons with European markets, are two of the reasons behind the false narrative that has developed around retailing in Ireland.

That’s according to Neil Bannon, chairman and head of consultancy at Bannon Property Consultants. And Neil Bannon should know, as one of Ireland’s most experienced retail agents and responsible for a swathe of instructions across Ireland.

According to Bannon, an inaccurate, negative narrative has developed around the Irish retail market, which has spooked investors and developers, who remain happy to invest in other sectors, even though the supply and demand dynamics may be less solid than in retailing.

The “elephant in the room”, he says, is internet retailing, which according to Bannon is misunderstood.

“It’s just another means of supply and as with all markets, the supply-demand dynamic will ultimately determine values in retail real estate,” he says.

Irish internet shopping is well behind many European markets, and comparisons with other markets are misleading – not least due to over-supply problems in other markets, but also because of the less restrictive planning regimes abroad which often see retail parks permitted to sell all types of goods (eg UK and France.)

Most Irish retailing schemes are effectively full, according to Bannon. His firm manages over 50 schemes around Ireland and, “apart from one or two outliers”, all are over 95% occupied.

And why would it be any different? he asks. Spending has risen by 34% since 2012, consumer savings and household worth are at all time highs, there’s another half-million people in the country, and almost no new space has been built for over 10 years.

The largest retail development, he tells me, is the 14,000 sq.m extension to Galway Retail Park, which will open in April, fully pre-let, to tenants including Harvey Norman, Boots and Carraig Donn. (The scheme has an “open-use” retailing permission.)

Rents for 1,000 sq.m units are “in the early to mid, €300 per sq.m range”.

Bannon Property Consultants also manages eight retail parks for Sigma (Oaktree) in locations like Naas, Navan and Sligo, and that portfolio is 99% let.

Despite the positive fundamentals, rental growth has been muted and Bannon puts that down to the absence of UK retailers, who traditionally underpinned the demand for shops here.

As an example, he tells me that 11 new shopping centres opened here in 2007, all fully let, and highly dependent on UK brands as tenants. “In Athlone Town Centre, over 70% of the occupiers were UK brands,” he says.

Now, though, we have a much shallower market, although the UK names are slowly being replaced by European brands.

Another problem is that the US and UK over-supply statistics are being transposed onto Ireland by international retailers and investors. But there is no comparison, says Bannon. Irish supply is at mid-European levels, and 20% below the UK. For the States, he says, think of the five largest shopping centres near you, then imagine that there are five more of each of them, in easy reach. That’s the scale of the US over-supply.

The problems in Ireland are on the Main Streets, which Bannon says is a 50-year trend. “Much modern retailing cannot function in houses converted into shops.” Infrastructural changes are another issue: “When a scheme like Athlone Town Centre opens, every Main Street within 30 miles on the motorways suffers.”

The future for Main Street, Bannon says, is to focus on “necessity shopping” – convenience driven and experiential offers like grocery, butcher, baker, coffee, and hairdressers etc – but not fashion, as you can’t compete on range.

In the meantime, he suggests, many retailers are finding it difficult to make profits from online retailing. “When you add the costs of shipping, advertising, and unusable returns, it gets close to the cost of rent for a shop.” The future is multi-channel, a blend of Main Street, centres and internet, and he cites Next as a retailer that is getting that right.

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