10th August (Issue 309)
Welcome to the Origin Capital Weekly Irish Property Review. This update is designed to provide you with a full recap of the latest property news from the media over the last seven days.
RETAIL
Jysk Expansion Danish homewares retailer Jysk will open six new Irish stores before the end of the year, with up to a further 10 planned for 2022. The group says it believes the market in the Republic could eventually bear “between 40 and 50” of its outlets. The company, which entered the market two years ago and has nine stores here, will open an outlet in Ashbourne in Co Meath this month, followed by Carlow in September, Tralee in Kerry and Eastgage in Cork in October, and Limerick and Dundalk in November.
Currently it only has one store in Dublin but Jysk believes the capital could support between eight and 12 outlets. It is also targeting other urban areas such as Galway, while Eastgate will be its first store in the vicinity of Cork city. Jysk says its six store openings for the remainder of 2021 will see it invest €7 million and recruit about 90 new staff. Jysk has about 3,000 stores worldwide and is aiming to breach 5,000 over coming years. It plans to open 200 stores in Europe alone over the next year. The company has repeatedly complained about the length of time it takes in Ireland to get a new store through the planning process. Irish Times, 10th August
Hammerson, owner of many of the UK and Ireland’s biggest shopping centres, plans to convert some of those assets for housing, hotels and workspaces in a sign it sees further long-term disruption to the retail sector. In Ireland, the company co-owns Dundrum Town Centre with German insurer Allianz. The group also owns half of the Pavilions shopping centre in Swords, the Ilac Centre in Dublin city centre and 40pc of the Kildare Village premium outlet mall. It has plans to build residential units in Dublin city centre and Dundrum.
In its half year report Hammerson said rent collection rates have continued to improve. In Ireland, the group has collected 83pc of rent in respect of 2020. For the first half of this year, rent collection rates here are at 65pc. Estimated rental value (ERV) has fallen by 29pc in the UK, 4pc in France and 14pc in Ireland relative to their peak levels in December 2017 for UK and France, and December 2018 for Ireland. Hammerson provided rent waivers for lockdown periods during 2020 and 2021 totalling £41m. Last month the listed company said it does not expect to offer rent cuts or rent holidays to retailers in the future. The company went on to warn that “all avenues to collect rents due are being pursued”. Irish Independent, 6th August
Lisney Report notes that various trends in retail and F&B have established or are evolving as a result of COVID-19. These include shopping locally, increased shopper engagement online, dark stores, virtual kitchens and how companies, be they retailers or otherwise, are advancing sustainable and socially conscious practices. Lisney’s note that the prime shopping streets and shopping centres in Dublin have been severely hit by the pandemic with the closure of many high-profile brands. In the absence of these established overseas brands taking stores, short-term pop-ups will happen. This is likely to mean more interesting pop-ups will appear in the main shopping areas in the run up to Christmas. There is likely to be more pain to come before a sustainable retail market is back up and running and Landlords will need to be more flexible on lease terms to attract retailers.
Turnover rents are being discussed again, mainly driven by international and UK brands. They can be difficult to negotiate and there is no one single solution. Each store and tenant must be considered on a case-by-case basis with matters including the handling of click-and-collect, instore online purchase, online purchase, instore returns, etc. Lisney Quarterly Report, 4th August
MIXED USE
Planning Change Uninest, the student accommodation provider, has gained approval from Dublin City Council to convert 571 student beds at Ardcairn House in Dublin 7 into tourist accommodation for temporary ancillary usage for the 2021/2022 academic year. The principal permitted use as student accommodation will remain during this period. The application was sought on the basis of the continuing impact of the Covid-19 pandemic on international and domestic demand for student accommodation.
Uninest said the international student market regularly accounts for 50 per cent of the uptake of its facilities and it does not anticipate that this market will make any major recovery within the coming academic year. It also said it did not foresee full recovery of the domestic market. The Irish Hotels Federation has consistently lobbied against proposed temporary conversions by student accommodation providers, arguing that the ancillary usage puts undue pressure on the already pandemic-stricken tourism industry. Business Post, 6th August
INDUSTRIAL
Lisney Report Dublin industrial market take-up reached 64,100 sqm in Q2. While this is slightly less than the long-term average, it does highlight the sector’s continued resilience in the midst of a pandemic. There were 46 transactions in Q2 with an average lot size of 1,400 sqm, identical to Q1. Continuing with the quarterly trend of recent years, lettings rather than sales dominated activity, accounting for 78% of all space transacted (and 72% of the number of deals). Eight of the top ten deals (including the four largest) were lettings and comprised two-thirds of all activity. The split between lettings and sales traditionally evolves in line with movements in capital values; when they are low, more occupiers are inclined to buy buildings for their own use, but when prices rise occupiers often judge that the money tied up in owning a building could be put to better use. Given that capital values have grown considerably in recent years, and continued to do so over the pandemic, the market will be primarily made up of lettings in the medium-term.
There were 36 units transacted in Q2 that were less than 1,000 sqm in size, including 26 smaller than 500 sqm. Supply remains low with the vacancy rate under 5%. New building completions were delayed further with site closures during part of the quarter, but construction activity is set to improve in the short-term. Lisney Quarterly Report, 4th August
HOSPITALITY
FBD said it estimates that gross claims and expenses arising from a landmark Covid-19 business interruption pubs test case in February will come to €183 million, up from a previous figure of €150 million. The company highlighted in financial results for the first half of 2021 that it has also set aside a €13.4 million provision during the period to cover compensation to customers where FBD initially refused to accept liability for public house business interruption claims last year. This was on foot of recent decisions by the Financial Services and Pensions Ombudsman (FSPO) in relation to this issue, which had a wider bearing than the individual complaints the FSPO dealt with. FBD swung into a profit of €22 million for the first half of this year from a €9 million loss for the same period in 2020. While the High Court heard a so-called quantum hearing in July in respect of the public house cases, a ruling on the matter is not expected until December. Irish Independent, 6th August
RESIDENTIAL / LAND
Daft.ie Report In its latest quarterly report, Daft said rent prices nationally rose at an annual rate of 5.6 per cent in the second quarter, the strongest year-on-year increase since mid-2019. The increase reflects an “unprecedented scarcity” of available properties, it said, noting there were just 2,455 homes available to rent on its website on August 1st last, the lowest number since its quarterly series began in 2006. Outside Dublin, there were just 789 homes available to rent, by far the lowest on record. Prior to 2020, the lowest level had been about 1,500. On average over the past 15 years, there have been nearly 9,400 homes available to rent at any one time, Daft said, while the 2015 to 2019 average was almost 3,900.
According to the report, the average monthly asking price for rent stood at €1,477 in the second quarter of 2021, up almost 99 per cent from a low of €742 per month seen in late 2011, while the average in Dublin was €2,035. In Cork city, the average was €1,524 compared to Galway city (€1,443); Limerick city (€1,337); Waterford city (€1,136) and the rest of the country (€1,117).
In Dublin, rents rose for the second consecutive quarter, by 1.4 per cent between March and June, but are just 0.5 per cent above the level seen a year ago. The other cities, however, have seen much larger increases in rents: in Cork, Galway and Limerick cities, rents are between 9 per cent and 10 per cent higher than a year ago, while in Waterford, they are nearly 12 per cent higher.
“It is a sector facing unprecedented shortages, with extraordinarily tight supply: to give just two examples of many, there were just 15 homes available to rent in Waterford, city and county, on August 1st and only eight in all of Offaly. Ireland’s rental sector has undergone a lost decade and half, with almost no new rental homes built. This cannot be solved by trying to regulate prices,” said Ronan Lyons, economist at Trinity College Dublin and author of the Daft Report. Irish Times, 10th August
Irish land sales totalled €99 million in Q2, which brought total year to-date turnover to €194 million. This represents an increase of 16% compared to the same period in 2020 when turnover reached €167 million. Notably however, it marked a decline of 59% compared to the first six months of 2019 when turnover reached €473 million. There is currently a lack of development opportunities available but Savills are expecting to see an increase in the supply of development land in Q3 as pandemic related uncertainty is reduced, with a number of large transactions – both with and without planning – expected to come to market in September. Seasonality will also play a role, with Q3 typically seeing elevated levels of activity in any given year.
Land with residential zoning made-up the highest share of turnover in Q2 with residential zoned land sales accounted for almost 50% of sales volumes, with many of the mixed-use sites that traded in the quarter also having the potential to accommodate a significant residential component. A high proportion of land with industrial zoning also traded in Q2, accounting for 36% of turnover. Savills Q2 Irish Development Land Market Report
OTHER
Purchasing Managers Index The latest Ulster Bank Construction PMI published yesterday shows that the housing, commercial and civil sectors all posted strong growth in July. The overall index stood at 62.8 last month compared to 65 in June. Any figure above 50 indicates expansion, and any figure below, contraction. While the pace of July’s expansion was slower than that seen in June and May, it still represents substantial growth. In the housing segment, the survey recorded a reading of 63.7, compared to 68.8 in June. For commercial construction activity, the reading was 60.9 compared to 63.8. For civil construction, the reading was 53.7 in July compared to 57.7 in June.
Notably, “considerable disruption to supply chains linked to Brexit and the pandemic has manifested itself in delivery delays, materials shortages and a further acceleration in the rate of input cost inflation which rose to another record high last month,” said Simon Barry, chief economist for the Republic of Ireland at Ulster Bank. The rate of input cost inflation hit a new record for the survey for the third consecutive month in July, with more than 75pc of respondents saying their input prices had increased last month. More than half of all respondents expect a rise in activity in the coming year. Irish Independent, 9th August
Spending Data Daily card spending climbed to 16% above its pre-pandemic level in the week ending August 1st as fully vaccinated consumers took advantage of the opportunity to dine indoors. This contributed to a total July card spend that was 11% and 5% ahead on an annual and two-year basis, respectively. The continuation of the speedy vaccine rollout combined with the wider reopening of the economy in the coming months suggests the prompt recovery evident in the data thus far will maintain its momentum for some time.
Goodbody’s note that spending patterns would be concentrated in those sectors that consumers had been deprived of throughout lockdowns before eventually reverting to normalised trends. This was largely the case in July, as staycations and the return of indoor dining contributed to continued surges in spending on accommodation, which grew 5% on a 2-year basis and restaurants, which grew 16% on a 2-year basis. Not only did the volume of spending in these sectors increase, but consumers spent a larger proportion of their income on accommodation and restaurants in July on average (5.8% and 7.8%, respectively) compared to the months prior (4.2% and 6.6% June, 1.6% and 4.6% May). Goodbody Stockbrokers, 6th August
GDP Forecast Ireland’s gross domestic product (GDP) is forecast to grow by 10 per cent this year, according to Davy, which has more than doubled its projection from 4.8 per cent previously. The upward revision was mainly put down to the buoyant export and multinational sectors, but also because the indigenous economy is performing better than expected. “The contraction in early 2021 was shallower than we feared, and a clear rapid bounce-back has taken place in the third quarter as Ireland’s successful Covid-19 vaccination programme has allowed business restrictions to be lifted, with further easing to come in the second half of the year,” it said.
Davy said the export and multinational sectors “remain impervious” to any Covid-19 related disruption. However, a “sharp bounce-back” is now also underway in the indigenous economy following relaxed Covid-19 restrictions and good progress with vaccinations. “We are forecasting an exceptionally strong rebound in consumer spending, up 6.5 per cent in the second quarter, up 5.5 per cent in the third, and close to pre-pandemic levels by the final quarter,” Davy continued. It added that the absence of planned tax rises in October’s budget will support spending into 2022. Davy Stockbrokers, 9th August
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