Ireland ranks second highest for shopping centre space per capita in Europe, after the Netherlands, in research by Jones Lang LaSalle of 25 countries, with approximately 440sqm of shopping centre stock for every 1,000 people. In sharp contrast, Bulgaria has the least amount of shopping centre stock, with just 25sqm for every 1,000 people. Meanwhile, a survey conducted by the Society of Chartered Surveyors in October last, found that the nature of Irish commercial leases being negotiated between landlords and tenants has already changed, despite the Minister for Justice Dermot Ahern’s decision to sign an order banning upward only rent reviews, which will come into effect on 28th February 2010.
Over 300 new shopping centres were completed in 2008 and as with previous years, Russia was the most active market seeing close to 1.1 million sq m of new space open across 34 schemes, representing some 13% of the total increase in European stock. Turkey experienced another boom year with newly opened space falling just short of the 1 million sq m mark, whilst completion levels in the UK climbed above 700,000 sq m. Elsewhere Germany, Spain and the Ukraine all registered stock increases of over 600,000sqm. Poland and Romania also had an active 12 months.
Last September, commercial property firm Cushman & Wakefield, said the decline in construction has yet to reach its low point.
For 2011, when Europe's shopping centre market is expected to feel the full effect of the global recession, only 53.8 million square feet of shopping space is scheduled to deliver, which will mark an eight-year low.
In 2009, an aggregate 93.6 million square feet of space will be erected, 5% less than the total in 2008. While the current level of activity is quite dismal compared to the glory days last seen in 2007, there are still those that lead the pack. At the end of the second quarter, Russia had opened the largest amount of new shopping centre space, launching properties or expansions totaling approximately 6.2 million square feet.
In related property news, Irish capital values have returned to the December, 1999, according to the Irish Property Index compiled by Jones Lang LaSalle.
Sales turnover this year has only reached €172 million and may be in the range €250 million to €270 million for the full year compared with €1.64 billion in 2007 and the €3.62 billion spent in 2006.
Irish property overseas investment this year has plunged to €86 million compared with €2.1 billion in 2008 and €9.9 billion in 2007 - - when the Irish were the second biggest investors in commercial property across Europe.
Stephen Murray, European Retail Director of Jones Lang LaSalle commented on the Irish shopping centre scene: “Evidence that Ireland’s current phase of development is petering out is obvious once you examine the percentage of shopping centre pipeline currently under construction; it now accounts for about 5% of the total current stock. By contrast, the extremely rapid pace and extent of new shopping centre development has been unprecedented. The country’s first shopping centre in Stillorgan opened over four decades ago in 1966. However, the findings of the Jones Lang LaSalle study reveal that since 2003, total shopping centre floor space in Ireland has actually doubled.
“With much more intense competition for a share of customers’ wallets, the winners in terms of the current phase of shopping centre developments will be those that have a significant range of shops in addition to leisure offerings such as cinemas and restaurants as well as ease of parking. Examples include Blanchardstown Town Centre and Dundrum Town Centre in Dublin and the Crescent Shopping Centre in Limerick.
“Notwithstanding pockets of clear over-supply - - or inappropriate supply in the case of some recent new or pipeline centres such as Limerick - - it is probable that these larger established schemes will, in fact, see potential for phased extension developments in years to come. However, in the case of neighbourhood or small district centre schemes, it is unlikely that significant additional development will be seen for at least five years. In order to maintain and maximise property value in such a competitive sector, it will be essential for landlords to maintain improvements in tenant mix; to invest in active asset management, and to ensure a greater degree of partnership with their occupier tenants.
“As the rising tide that helped the values for all centres finally recedes, we will see more modest rental growth in the medium term for the best run centres. This will be at the direct expense of a significant decline in rental income and increased unit vacancies for many other centres. Those owners who do not identify their centre’s points of difference in the market, and quickly develop and implement a strategy to build on their market advantages, risk failure,” he concluded.
Jones Lang LaSalle Shopping Centre Report
Prime Shopping Centre Rents in Europe (excluded Ireland)
Rent reviews
A survey conducted by the Society of Chartered Surveyors last October, shows that the nature of commercial leases being negotiated between landlords and tenants has already changed, despite the Minister for Justice Dermot Ahern’s decision to sign an order banning upward only rent review clauses, which will come into effect on 28th February 2010.
The survey was undertaken in order to assess the changes that have now taken place in the market since legislation was approved.
Director General of the Society, Ciara Murphy, said: "The commercial property market had already adapted to the changed economic circumstances, as identified in our earlier members survey conducted during the summer months and will no doubt continue to do so. In this up to date survey, 96% of our members, who represent both landlords and tenants, have confirmed that the nature of leases being granted has changed with almost half of the new leases granted in the retail sector incorporating turnover based reviews. An overwhelming 91% of respondents indicated that shorter term leases are being secured which are unlikely to contain any rent review clause.’
The survey also confirmed that variations are being granted in current leases despite an upward only rent review clause. 95% of respondents confirmed this to be the case with a further 80% indicating that other variations have also been granted. ‘It was always the view of Chartered Surveyors that market forces would determine the nature of leases going forward in changed economic circumstances and our survey has proven this to be the case," said Murphy.
According to Senior Vice President, Peter Stapleton, the change in legislation will have a negative effect for pre-funding of developments as there will be no certainty of rental flow into the future. Private investors will be required to put increased equity into acquisitions over and above the increased equity that the banks are going to require anyway as lending criteria and regulation gets tighter. Inward investment, which is so desperately needed, will be affected as will investor’s confidence. The market will be less liquid and of course stamp duty prospects for Revenue on commercial transactions will not look good.
"Substantial concessions have been an important part of lease deals offered to tenants by way of rent free periods or fit out allowances, but under the new regime this substantial trade off will not be possible, as no contracting out provision is provided for," he said.
