The Irish retail property sector outperformed office and industrial sectors during the third quarter of this year as it played catch-up while its two rivals marked time.

Meanwhile, some provincial city high streets enjoyed declining retail vacancies, but vacancies in Dublin, Belfast and Waterford increased. These are some of the features of two recent reports on the property markets.

Increases of 0.4 per cent were seen in both rents and capital values for retail properties in the three months to the end of September, according to JLL’s Irish property index. Over the last six months, retail rents and capital values grew by 1 per cent and 1.1 per cent respectively, which outstripped value growth of offices and industrials.

This welcome upturn, on the back of healthy Irish consumer and jobs trends, comes at a time when a number of major retail investments are up for sale. CBRE research suggests that the buyer pool for retail investments has also thinned considerably across Europe leading to a softening in retail yields in some locations.

Britain continues to see a number of retailers either close stores or force landlords to reduce rents, or both. The most recent in the firing line is Claire’s accessories chain, which has more than 350 shops in Britain. It has more than 40 outlets on the island of Ireland.

Research by JLL Ireland shows that, despite recent increases, retail rents in its index have risen by only 36.8 per cent from their trough, well behind office rents, which have more than doubled.

Nevertheless, another encouraging sign is Friends First’s continuing investment in retail, the latest being Carlow Retail Park for €16.75 million. Anchored by Woodies, the 10,631 square metre property is fully let and with a rent roll of €1.412 million generates a net initial yield of 7.8 per cent. Friends also purchased five adjoining acres on which it plans to develop an extension and is already in discussions with potential occupiers. TWM acted for Friends and Murphy Mulhall for the off-market vendor.

The deal comes only weeks after Friends purchased Citypoint building in Galway city centre, which also includes retail units.

Claire Solon, head of property at Friends First, explained that the Carlow deal followed from rent increases at its other retail parks. “We purchased the Globe and Kilkenny retail parks in 2016 as we took the view that an increase in house building and home improvements were highly likely and this would support retailers operating in the homewares and DIY sectors of the market,” she said. This forecast has indeed been borne out by retail sales figures.

“We have also seen the benefits of active management,” said Solon. For instance, Kilkenny retail park was rated 26th out of 38 parks in terms of management in 2015 but, within a year of Friends’ purchase, the Retail Excellence Ireland Survey rated it ninth best.

“Providing a responsive management team that is driving footfall, marketing the offering and creating experiences within retail parks is important.

“Following the completion of the coffee pod in the Globe retail park, we have seen footfall increases and extended dwell times for customers, which positively impacts on the trade for the existing occupiers,” Solon said.

It will be interesting to see how the increase in the Vat rate on restaurants may affect the food and beverage sector, which provides attractions for retail precincts not alone in retail parks, but also in traditional high streets.

Before the Vat increase, CBRE research recorded 23 transactions in Dublin’s major shopping centres and high streets during the first three quarters of 2018, of which eight were on Grafton Street and Henry Street. The food and beverage and beauty sectors, both of which were hit by the Vat increase, accounted for 13 of the 23, while homeware retailers accounted for four deals.

“Although many British retailers remain under pressure in their home market, this had little or no impact on their Irish operations and we have continued to see UK retailers expanding their businesses in the Dublin market over recent months,” said CBRE’s Marie Hunt. As many as ten of the 23 transactions were by British brands.

CBRE’s survey of high street vacancies recorded falling vacancies in five towns and cities. The sharpest decrease was observed in Sligo’s O’Connell Street, where the vacancy rate fell from 20.5 per cent to 17.9 per cent.

Meanwhile, Galway has just one unit vacant. Other markets such as Kilkenny (3.3 per cent), Limerick (7 per cent) and Cork (7.8 per cent) also saw declines.

In Waterford, despite some new high street lettings, vacancy increased to 7.7 per cent. Belfast also increased to 7.6 per cent and the fire at Primark has led to the closure of McDonald’s, Spar, Zara and Tesco, which will affect other retail footfall.

The vacancy rate on Dublin’s high streets also increased slightly to 4.6 per cent, which was primarily a result of protracted lease negotiations or ongoing fitout projects.

Among the retail assets currently on the market are Westside Shopping Centre outside Galway city, for which Cushman & Wakefield is guiding €9.6 million. Fully let, it produces a net operating income of more than €750,000, which would equate to a net initial yield of 7.25 per cent. The centre is anchored by Dunnes Stores whose unit, along with some others, has already been sold off on a long-leasehold basis.

Meanwhile in Co Meath, 11 fully-let units at Johnstown Shopping Centre on the outskirts of Navan have a €3.8 million price tag. Alexandra Patterson of Bannon said annual income of €329,920 including rent from three phone masts would equate to an 8 per cent net initial yield.