Property powerhouse and NAMA valuation panel member, CB Richard Ellis (CBRE) yesterday published its quarterly overview of the retail property sector inIreland. It’s a funny old report as it mixes together some statistics on retail generally and elsewhere confines its reporting to shopping centres or indeed two specific Dublin streets. Whilst a little light on detail, it concludes that rent levels are still falling, though at a reduced pace and average retail rents inIreland are now down 50% from peak levels in 2007. The note also claims that rent levels continue to come under pressure which suggests further declines in the short term at least.
The report confirms the challenging environment faced by retailers with retail sales excluding cars down 5% year-on-year (car sales benefited from a scrappage scheme which has distorted buying behaviour). Footfall on two of Dublin’s main shopping streets, Grafton Street and Henry Street is down 4-10% year on year, suggesting there are fewer customers. On a more positive note, Ireland has attracted the presence of more global brands.
As regards capital values, the report cites the IPD property index which for retail premises indicates that prices are some 65% off peak levels. There was not one single retail investment transaction inIrelandin Q1, 2011 according to the report and although not stated, the inference is that sales transactions have tailed off across all retail sectors.
The reason? The challenging general economic conditions can’t be helping but the report identifies the proposed (or “threatened” or “committed to”, depending on which side of the debate you stand) abolition of Upward Only Rent Review (UORR) leases which may mean that commercial tenants see their rents falling to open market rents. UORR leases may have rent levels twice that of current open market rents. The Society of Chartered Surveyors in Ireland yesterday called for urgent clarification of intentions in respect of the issue from the justice minister, Alan Shatter.
Interestingly the report concludes that vacancy levels are more or less stable, with vacancy on the two survey Dublin Streets actually dropping considerably in the last 12 months. Because the report seemingly examines shopping centre and retail park vacancy, it is unclear if the “stable” claim applies across the board. Certainly many towns up and down the country seem to have no shortage of vacant premises, though these will not be in shopping centres.
And lastly, the report seems to adopt a curious position on the IMF/EU Memorandum of Understanding commitment for Q3, 2011 “the government will conduct a study on the economic impact of eliminating the cap on the size of retail premises with a view to enhancing competition and lowering prices for consumers and discuss implementation of its policy implications with the Commission services” (PDF page 79). CBRE say “in our opinion, eliminating the current cap would not necessarily enhance competition or lower prices for consumers” No evidence is offered in support of that opinion.
UPDATE: 30th June, 2011. One scheme not referred to by CBRE is the Northside Shopping Centre in Coolock where a 8,000 sq ft unit has just been leased to bargain shop chain, Euro 2. The annual rent is apparently €25 psf or €200,000 on a 10-year term with a five-year review.
NAMA Wine Lake 
UORRs are a complete insanity. They are without any rational economic, moral, and probably real legal basis. The fact that hard pressed retailers are being prevented “by law” from negotiating a lower rent in tough times–all while new leases are up to 50% cheaper–is an insane state of affairs which could only have been concocted by the Irish property sector.
Aside from that, falling rents are actually a good thing for most of the country. For businesses, customers, and generally everyone else, a fall in rents by over 50-60% from peak levels is a godsend. The government should immediately abolish UORRs so that the fruits of this new economic reality can be enjoyed by those sectors that the country needs most.
This review talks about commercial rents, but if we were to see falls like these in residential rents, it would take a huge amount of pressure off hard pressed tenants. It would give them more disposable income and would probably have an effect akin to a modest tax break.
My opinion is that the government should welcome this fall in commercial rents, and moreover, try to precipitate such a fall in rents in the residential sector as well. We have an oversupply of property of all kinds and such a move is both natural and beneficial for the country. The property sector may complain, but they are not the people who are going to get the economy rolling again(In fact they are the people who sunk it).
@OMF: OK, everyone’s entitled to a good rant now and again, but the last thing that we need is more government interference. They did that in September 2008 and by that single act of treason alone – they sunk the economy – not the property sector. They have nationalised the property sector in all but name and have made a real success of it to date. (I’m being sarcastic BTW)…. no liquidity, no banks, no investment, no jobs, no market…..
@WSTT, you’re not moonlighting as a scripwriter for disgruntled Galway West senator, Fidelma Healey Eames who has a right old go at NAMA today via her website
http://fidelmahealyeames.ie/2011/06/01/galway-businesses-frustrated-by-nama-healy-eames/?utm_source=twitterfeed&utm_medium=twitter
She demands the appearance of Brendan McDonagh before the Seanad, claims a business plan costs a minimum of tens of thousands of euro to prepare and delays & bureaucracy are hampering the prospects for Galway businesses.
This hornets nest again?
Irish commercial lease law i.e. upward-only rent reviews(UORRs) tied to long leases, is a suicidal form of self-sabutage,
It is the most anti-tenant lease law on the planet. It inflated rent and commercial property prices. The commercial property bubble was a direct consequence of it’s malign effect.
UORRs allocate the macro-economic risk to the party least able to bear it. They are a barrier to entry for small businesses and inhibit their growth. They are anti-competitive ,in effect price-fixing where the price/rent could not fall to the actual market price/rent. UORRs distort investment choice and result in property investment being favoured over more productive assets. With these leases landlords have little incentive to invest in the building structure to reduce depreciation and obsolescence;thus under-investing in the capital stock of the country. In a falling/deflationary market UORRs discriminate against the incumbent firm in favour of new market entrants and create a two-tier rental system. If a landlord under-prices the rent at a rent review, then at the next review he can recoup, whereas if a tenant is overrented ,as is the case all across our country,he could stay overrented for the remainder of the lease ,which could be 25 years.
The reform of this feudal system is long overdue. When George Soros was asked why he is such a wealthy man he replied” I rectify my mistakes as quickly as possible”
Irish commercial lease law is one of our country’s big mistakes —every tenant ,who is a prisoner of this poisonous lease law should be granted an open market rent review as quickly as possible.
Agree. Couldn’t agree more. I’d be in the minority on this particular forum. Still, Shatter has spoken and the end of UORR is nigh.