Irish Retail Deals Surpass Office As Sector Rebounds — But Only If The Price Is Right
As investors wring their hands over the fate of Dublin’s office market, another sector long neglected and written off by some has started to show signs of life.
Retail centres are back on the shopping list, and from Hammerson seeking refinancing for Dundrum Town Centre to Goldman Sachs seeking a buyer for Blanchardstown, transactions in a previously moribund investment market are beginning to stir.
This being retail, the catch is that sellers have to be prepared to offer a bargain.
In its most recent Ireland Investment Market update for Q2 2023, adviser Cushman & Wakefield said that investor interest in the retail sector has improved thanks to the increase in yield on offer from the sector, as well as the resilience of Irish consumer spending.
It said that in the second quarter, retail was the most popular sector with investors, with almost €130M transacted across nine deals. A number of retail park and retail warehouse deals featured prominently, including Inter Gestion REIM’s acquisition of B&Q’s flagship retail warehouse at Liffey Valley, Dublin, for €26M and the off-market sale of two retail parks to Realty Income for €46.6M combined.
And in late July, a fund managed by Davy Real Estate paid just over €103M across two deals for seven of Ireland’s best-known regional shopping centres.
The acquisitions included the Marshes Shopping Centre in Dundalk from U.S. real estate firm Kennedy Wilson for about €29.5M. The Davy fund has also just completed the €74M acquisition of the Hexagon portfolio, a collection of six regional shopping centres built and owned by Harcourt Developments.
The Marshes deal has completed for €4M less than Kennedy Wilson had been guiding when it offered the centre to the market through joint agents Bannon and CBRE in June 2022. While the purchase price equates to an approximately 14% discount on that guide, it represents a steeper discount of 34% on the €44.5M the company paid for the Marshes in 2014.
For the Hexagon portfolio, Davy has acquired a portfolio comprising Donaghmede Shopping Centre in Dublin; Letterkenny Shopping Centre in Donegal; Galway Shopping Centre; the Laois Shopping Centre in Portlaoise; Parkway Shopping Centre in Limerick; and the Longwalk centre in Dundalk, County Louth.
Discount To Asking Price
The price paid by Davy represents a 26% discount on the €100M that had been guided by agent JLL when it first offered the shopping centres for sale on the instructions of receiver KPMG.
Davy also purchased the €9.6M Eyre Square Shopping Centre in Galway city centre in April at a 33% discount on the €12.75M Colliers had been guiding when it brought the shopping centre to the market on behalf of U.S. investor Marathon Asset Management in August 2021.
Davy Real Estate had been expected to redevelop the Stephen’s Green Shopping Centre in Dublin city centre after paying a reported €175M for it on behalf of clients in 2019, and the owner is now thought to want to improve the connections between the centre and King Street, St. Stephen’s Green West and Grafton Street. The scheme is set for a €100M expansion that will add two storeys, reduce the existing retail offer and introduce office space.
Returning confidence in a repriced European shopping sector prompted Goldman Sachs to appoint Eastdil Secured and CBRE to find a buyer for the Blanchardstown Centre.
The proposed disposal of the west Dublin scheme is expected to have a guide price of €650M-€725M after Goldman Sachs originally acquired the mall for about €750M in December 2020 in a deal with the scheme’s previous owner, Blackstone.
The 1.1M SF Blanchardstown Centre has undergone extensive asset management since its latest acquisition, including the opening of flagship Zara and Flannels stores to replace Debenhams and the debut of Nike’s Unite format.
Based on an improved macro outlook, AEW has predicted annual growth of 1.2% for prime European high street retail rents and 1.4% per annum for prime shopping centre rents over the next five years.
It highlighted Dublin along with Stockholm, Paris and the UK regional markets as the standout shopping centre markets, while among high street retail markets Dublin, Berlin and Paris ranked top.
The Blanchardstown Centre currently comprises 188 shops, anchored by major retailers such as Dunnes Stores, Penneys, Aldi, Hollister, Mango and Marks & Spencer, two external retail parks, external retail units, eBay's HQ and 5,600 free car-parking spaces.
The scheme was strengthened after the loss of the 9K SF Debenhams was filled. respectively by fashion retailer Zara and Flannels, while Nike’s 10K SF debut Unite store in Ireland replaced the sportswear giant’s factory store at the adjacent Westend Retail Park.
In July, Lego also announced that it would open its second Dublin store after Grafton Street at the centre.
International Players Active
Meanwhile, testing the appetite of lenders, UK-based REIT Hammerson and German investor Allianz are looking for €600M of new debt secured against Dundrum Town Centre in Dublin.
The JV has brought in adviser Eastdil Secured to consult on the new financing deal. The REIT said in its annual report, published in March, that it is aiming to refinance the debt against Ireland’s biggest shopping centre, which matures in September 2024, at a 40% loan-to-value ratio and 5% all-in interest costs.
The whole shopping centre is valued at £1.1B, with Allianz owning the other 50% stake in the flagship mall.
Dundrum Town Centre has 169 tenants across 1.2M SF and is Ireland’s biggest shopping centre. Dundrum produces £48.1M in annual rent, according to Hammerson’s 2022 report, and footfall is up 3% compared with 2019.
Hammerson also co-owns the Swords Pavilions shopping centre and Dublin’s Ilac Centre.
International retailers have also shown their confidence in the Irish market. Ikea is currently preparing to open a major distribution centre outside Dublin at the start of 2024 to speed up service for its homewares and furniture.
Meanwhile, Penneys has opened a major new flagship at Dundrum, upscaling from its previous store there, while Frasers Group has expanded its portfolio in Dublin and in July HMV reopened in the city as part of the revitalisation of Henry Street.
Deals have also been signed for Castore, Bershka, Levi’s, Boots, Canda Goose, Foot Locker and Salsa Jeans in Dublin and for Sweatty Betty (Galway), Decathlon (Limerick) and JYSK (Cork) in recent months according to adviser Colliers.
Colliers Head of Research Kate Ryan pointed to the €198M of retail and retail-related asset deals as representing just over a fifth of total transactions in a “remarkable result” compared with an 8% average over the last five years.
“These figures highlight the recovery in investor sentiment towards retail in line with increasingly active occupier markets and rental growth potential,” she said in the adviser's latest report.
