Over the past 20 months, the Irish retail investment property market has undergone a remarkable renaissance.
The sector, which contributed only single-digit percentages to total turnover in previous years (even before the Covid-19 pandemic), grew to represent 21 per cent of total turnover in 2023. However, for the last three quarters of 2024, this share increased to a sector-topping 31 per cent, with projections suggesting it could reach as high as 55 per cent by year-end. This is dependent on the approximately €575 million Blanchardstown Shopping Centre deal, which is subject to regulatory approval, as well as other deals, going through before year end.
Should this happen, retail’s share of total turnover would surpass its previous peak of 52.8 per cent set in 2016. All the more impressive if you consider current pricing levels are currently at about half of those prevailing in 2016.
Within the retail sector, the primary focus for investors has been on retail parks, accounting for 35 per cent of total retail turnover. Amid rising capital expenditure concerns attaching to all real estate, retail parks remain attractive due to their limited landlord capital exposure and robust environmental, social and governance attributes, making them an appealing choice for responsible investing.
So, what’s driving this surge in retail investment? Firstly, it is important to acknowledge the difficulties being faced by the two usual industry leaders, namely the private rented residential sector and the office sector, which have been pushed into a distant second and third place.
However, the core of this “retail revolution” lies in investor confidence in supply-demand dynamics. On the supply side, beyond the “virtual supply” provided by a plateauing internet, there has been effectively zero net addition of retail space in Ireland for over the past 13 years. Meanwhile, on the demand side, a growing population, a strong consumer base supported by high savings, and robust employment growth, have contributed to consistently high occupancy levels. Moreover, the retail sector’s repricing in response to these past challenges has set it apart from other real estate markets.
With rates now moving downwards again, the relative returns in the retail sector are becoming even more appealing for investors seeking stability and growth.
It is a sector that is protected on the supply side (due to the natural protections in the Irish planning system), and one that is showing robust activity at both operator and consumer level on the demand side.
In this context, we anticipate a continued focus on the sector in 2025, which is likely to be supported by some large transactions in the pipeline. We also expect to see sustained interest in prime main streets, which look like particularly good value, at the moment as they are delivering very strong yield levels despite historically low rental levels.
Rod Nowlan is an executive director of Bannon
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