RESEARCH

GRAFTON STREET MARKET ANALYSIS 2016

TRENDS ANALYSIS OUTLOOK GRAFTON STREET MARKET ANALYSIS 2016 RESEARCH

SUMMARY GRAFTON STREET

inflation re-emerge since Q1 2014, with Aside from political developments, the With the vacancy rate essentially at zero, The lack of space on Grafton Street is 1. Robust economic growth Introduction average weekly earnings increasing by other major challenge facing high street occupiers are bidding strongly to get a increasing occupier activity in the is driving retail sales on Grafton Street is Ireland’s premier retail 0.5% in the year to Q2 2016. The growth retail is the rise of e-commerce, the foothold on the street which has led to surrounding areas, particularly amongst Grafton Street destination with a footfall of 57 million per in average weekly earnings is primarily implications of which are still challenging Zone A rents growing by 25% over the larger retailers for whom the small annum. Linking St. Stephen’s Green with being driven by private sector wage the traditional bricks and mortar retail past year alone to now stand at €6,500 floorplates on Grafton Street act as a 2. Zone A Grafton Street rents College Green in Dublin’s South City growth, which increased by 1.5% over market. Interestingly, prime high street psm. However, unlike the office and further limiting factor. Examples include now in the order of €6,500 psm Centre, the thoroughfare, which was the same period. retail is benefiting from internet shopping residential sectors – where rents are near H&M and Abercrombie & Fitch locating pedestrianised in 1982, contains 91 retail as these stores become showrooms for pre-crisis highs – prime retail rents still on streets just off Grafton Street. This Motor sales – a key barometer of units with department stores Brown the leading brands to display their trade at values that remain significantly activity has resulted in Grafton Street 3. The lack of space on Grafton consumer confidence – have risen by Thomas and Marks and Spencer anchoring merchandise, with shoppers purchasing below their pre-crisis peaks indicating becoming the focal point of an ever Street is driving occupier 10.2% in the year to August according to the street. International brands with a on-line at a later date. that there is plenty of scope for further expanding retailing hotspot which demand for space on adjoining the Central Statistics Office (CSO). presence on the street include Tommy rental growth in the coming years. extends beyond the street itself. streets, especially from However, the retail recovery has been Hilfiger, Massimo Dutti and Hugo Boss, large retailers broad based with the volume of retail while the shopping centres of St. Occupier market sales excluding motors sales increasing FIGURE 2 Stephen’s Green, Powerscourt and Royal Grafton Street is experiencing a by 4.1% over the same period. As a result Grafton Street Zone A Rents (sq m/yr) 4. Strong investor appetite has bid Hibernia Way also bring footfall to the area. significant rebound in occupier interest of the falling unemployment rate and down yields to 3.5%, down from with a number of prominent international positive wage growth, personal €12,000 a post-crisis peak of 6.5% retailers establishing on the street. For Economy consumption is now playing a greater example, Victoria’s Secret have let 2,152 role in Ireland’s economic recovery, €10,000 The Irish retail property market is sq m, of which 505 sq m is located on the 5. Grafton Street and its environs which was previously driven by benefiting from the ongoing recovery in ground floor, at 28-29 Grafton Street are seeing a wave of capital investment and exports. the economy, with declining where they will pay a Zone A rent €8,000 expenditure with a number unemployment and a return to earnings This feel good factor led to the ESRI/KBC of€ 6,400 psm. Other recent deals of of refurbishments and € inflation translating into increased retail Bank Consumer Sentiment Index hitting note include Dune London’s letting of No. €6,000 redevelopments ongoing spend. Unemployment fell to 7.9% in a 10-year high earlier this year, although 69 and & Other Stories pre-let of the September, down from a post-crisis peak the Index has since retreated slightly due newly redeveloped No. 26-27. €4,000 of 15.1% recorded in February 2012, with to the mixed Irish election result and the employment levels now above two million Meanwhile, L’Oréal owned Urban Decay largely unanticipated decision by the €2,000 for the first time since 2008. are reported to be taking a sub-lease at United Kingdom to leave the European 50 Grafton Street which will help Union. However, while the Index pared Unemployment is forecast to continue strengthen the southern end of the street €0 3.8% in July following the Brexit vote, 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3 2016 to fall with the Economic, Social and while IPUT are currently marketing 72 it has since recovered much of this loss Research Institute (ESRI) forecasting Grafton - which is undergoing a high- Source: Knight Frank Research that 46,000 new jobs will have been as the severity of the economic shock spec redevelopment - for a quoting created by year-end 2016. The declining has so far turned out to be less than Zone A rent of €7,500 psm. unemployment rate has seen wage initially feared.

FIGURE 1 Retail Sales Index (Excluding fuel, motor and bar sales) 800 130 700

120 600

RETAIL500 110

400 100 RENTS300 90 ARE200 STILL AT THE EARLY Value Volume STAGES OF THEIR RECOVERY. 100 80 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Aug 0 2016

Source: CSO 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

2 3 GRAFTON STREET MARKET ANALYSIS 2016 RESEARCH

GRAFTON STREET

1 Project Kells Key Sale price: €93,000,000 Lettings Yield: NIY 3.60% SOUTH WILLIAM STREET Sold: Q2 2016 Sales Buyer: Meyer Bergman/BCP Planned redevelopments Note: Planning approval sought to create H&M 7,432 sq m of retail space and 9,290 sq m of office space. Luas Cross City Line CHATHAM ROW 7 2 9-11 Grafton St POWERSCOURT Estmated sale price: 30,400,000 SHOPPING € 1 69 Grafton St Yield: NIY 2.61% (EY 3.40%) Project Madrid Sold: Q3 2015 Date: Q4 2015 CENTRE Development Buyer: Irish Life Tenant: Dune London Owner: IPUT area Accommodation: 3 13-14 Grafton St 211 sq m over 2 levels including Sale price: €34,000,000

98 sq m at ground floor NIY 4.50% (EY 3.06%) WICKLOW STREET WICKLOW Yield:

Rent: €337,500 pa STREET SUFFOLK Sold: Q2 2016 Zone A: €5,700 psm Buyer: The Brennan Family CHATHAM STREET 2 72 Grafton St Development CLARENDON STREET 4 85-86 Grafton St Due date: Q4 2016 area Sale price: €17,670,000 Tenant: Pre-let negotiations 8 Yield: NIY 2.61% (EY 3.40%) ongoing Sold: Q3 2015 Owner: IPUT Buyer: Irish Life Accommodation:

866 sq m KING STREET SOUTH Quoting rent: 7,500 psm 5 The Grafton Collection € CHATHAM STREET Note: The property is currently Brown Thomas Guide price: €40,000,000 being redeveloped to the value of Yield: NIY 4.62% €1,750,000.

Note: Consists of 2,362 sq m of HARRY STREET STREET HARRY commercial space including 414 sq m LADIES AND MENSWEAR of office space.

4 ULSTER BANK

(3 RETAIL FLOORS) PAMELA SCOTT LADIESWEAR SCOTT PAMELA

RIVER ISLAND MONSOON LADIES WEAR LADIES MONSOON

HOLLAND AND BARRETT THOMAS PATRICK SHOES 6 Royal Hibernian Way

(3 RETAIL FLOORS) DEPARTMENT STORE DEPARTMENT FITZPATRICKS SHOES WEIR JEWELLWR Sale price: 32,000,000 2 A I B BANK

HMV RECORDINGS HMV €

(2 RETAIL FLOORS) RETAIL (2

BROWN THOMAS BROWN MASSIMO DUTTI MASSIMO

HAIIRDRESSING Yield: NIY 4.19%

BEWLEY’S SHOES CLARKS PERMANENT HEALTHFOOD

PETER MARK

Stephen’s green BOSS HUGO CATH KIDSTON

ALDO SHOES ALDO

JEWELLER 1 BANK TSB Sold: Q2 2016

SISLEY LADIES WEAR JEWELLER BOODLES

CLOTHING

JEWELLER JEWELLER

TOYS & GAMESDISNEY STORE SAMUEL H INTERIOR DECORATORS PANDORA DUNNES

shopping centre STORES DUNE ROCKS Buyer: Friends First BANK Note: Planning permission has been SPORTS GOODS lodged for a substantial development to 9 THE OF IRELAND include retail and mixed-use units. BUS LIFESTYLE CARD GALLERY CARPHONE SPACE NK APOTHECARY VODAFONE TELEPHONE STOP MOLTON BROWN BURGER KING THE LOFT CAFE THE BODY SHOP F/FD REST WAREHOUSE SWAROVSKI HEALTH AND BEAUTY GIFTS BUSSTOP CTN GRAFTON STREET JOHN TELEPHONES HEALTH AND BEAUTY HLTH & BEAUTY CTN OFFICE SHOES 7 SEASONS Project Madrid GINOS I/CREAM OF IRELAND HEALTH MATTERS PANDORA JEWELLER PARLOUR HEALTH FOOD DUBRAY BOOKS FIELDS JEWELLER MCDONALD’S FAST FOOD (2 RETAIL FLOORS) BRERETON METEOR TELEPHONES RESTAURANT & MCCAFE CAFE BT 2 CLOTHING (3 RETAIL FLOORS) CARL SCARPA SHOES LEVI’S STORE CARROLLS GIFTS & OTHER STORIES CLAIRE’S LADIES LADIE AND MENS WEAR AND STARBUCKS COFFEE SHOP) ACCESSORIES BURGER KING BOOTS CHEMIST FAST FOOD RESTAURANT Guide price: 27,000,000 CHAMPION SPORTS GOODS TOPMAN MENSWEAR (2 RETAIL FLOORS) JEWELLER TOMMY HIFLFIGER € CAMERA CENTRE LADIES & MENS WEAR TED BAKER LADIES AND MENS WEAR LEMON STREET (2 RETAIL FLOORS) MARKS & SPENCER HICKEYS NASSAU STREET ONLY CLOTHING VARIETY STORE (4 RETAIL FLOORS) Yield: NIY 4.95% PHOTO GDS FOOT LOCKER SPORTS GOODS 5 CHEMIST

VANS LADIES & SWATCH JEWELLER MENS WEAR Note: Consists of 7,131 sq m of ENT THREE TELEPHONES commercial space. GINOS ECCO SHOES LOUIS I/CREAM VODAFONE TELEPHONES 4 FERAUD PARL 3 LONDIS CONV MENSWEAR 3 28-29 Grafton St STORE 8 One Clarendon Row / R & C MCCORMACK VAC NESPRESSO Date: Q2 2016 JEWELLER Chatham Court ANN STREET SOUTH DOMESTIC Tenant: Victoria’s Secret Sale price: 41,000,000 BUTLERS 10 APPLIANCES € Owner: IPUT CONF & BIS Yield: NIY 4.34% Accommodation: 2 Sold: Q2 2014 2,512 sq m over 5 levels 3 Buyer: Lonestar including 505 sq m at Note: Lonestar have submitted an appeal ground floor PROJECT KELLS to develop retail on the ground floor with Rent: €1,850,000 pa offices above. DUKE STREET Zone A: €6,889 psm DUKE DUKELANE LANE Note: The property is currently 9 57-58 Grafton St being refurbished to the value of 6 €10,500,000. Sale price: €19,470,000 Yield: NIY 3.37% (EY 3.50%) 1 Sold: Q3 2015 4 26-27 Grafton St ROYAL Hibernian WAY Buyer: Irish Life Date: Q3 2015 Tenant: & Other Stories dEVELOPMENT AREA Owner: Aviva Investors 10 50 Grafton St Accommodation: Sale price: €6,750,000 878 sq m including 216 sq m Yield: 5.39% at ground floor Sold: Q3 2016 Rent: €925,000 pa Buyer: Irish Life Zone A: €5,500 psm Note: The property is fully DAWSON STREET refurbished. Total refurbishment spend amounted to €5,000,000.

4 5 GRAFTON STREET MARKET ANALYSIS 2016 RESEARCH

Investment Investors, keen to get into the market at the Portfolio – which included 7-11 and 85-86 “Irish Life, already early stages of the rental recovery, have Grafton Street – and the Lifestyle Sports one of the largest bid Grafton Street yields down to 3.50% in tenanted 57-58 Grafton Street. Q3, down from 4.00% at the same period Significant investment sales currently on property owners last year. The main obstacle for buyers the market include the Grafton on the street, looking to make this play is the lack of Collection, which incorporates a product now coming to market with substantial retail block on the corner of further cemented long-term Irish institutional investors Grafton Street and Duke Street. Guiding its interest in the having substantial holdings on the street. €40.0 million to give a yield of 4.62%, the street in Q3 with Irish Life, already one of the largest property property is attracting interest from the purchase of owners on the street, further cemented its national and international investors. interest in the street in Q3 with the purchase In addition, Knight Frank are marketing 50 Grafton Street.” of 50 Grafton Street for 6.75 million € the ‘Madrid Portfolio’, a 7,100 sq m retail representing a net initial yield of 5.39%. focused portfolio located on the fast This added to the acquisitions they made in appreciating streets directly to the west of 2015 which comprised of the Sovereign Grafton Street, for €27.0 million. With a

FIGURE 3 Grafton Street Yields

8%

7% 6% RENTS 5% WAULT of 4.56 years, the sale represents advantages of this strategy having In addition, following their acquisition of 4% the opportunity for investors to gain purchased 57-58 Grafton Street last year, the remaining 50% stake in Royal Hibernia exposure to the Grafton Street area rental 3% which underwent an amalgamation prior Way in Q2 of this year, Friends First have appreciation story with future to sale by vendor Nama. submitted plans which will see a 2% redevelopment potential. substantial upgrading of the shopping A number of developers and investors 1% arcade. The thoroughfare is expected to are currently working on taking 0% benefit greatly as a hop off point for 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Q3 Development advantage of the demand from 2016 international retailers for large floorplates Grafton Street when the new Luas stop on Source: Knight Frank Grafton Street and its environs are seeing through a number of redevelopment Dawson Street opens next year. a wave of capital expenditure, with a projects on the streets surrounding Construction work has also commenced number of high-profile refurbishments and Grafton Street. For example, Lone Star on Green REIT’s One Molesworth redevelopments ongoing. are appealing to An Bord Pleanála to which will consist of 2,137 sq m of retail allow for a mixed-use scheme on For example, luxury department store facilities at ground and lower ground Chatham Street, just off Grafton Street. Brown Thomas has recently completed a levels. Retail in the area will benefit from €20.0 million upgrade and reconfiguration The redevelopment will feature a number the footfall derived from the office of its landmark premises including spending of retail units and will back onto Lone redevelopments that are currently ongoing € 1.5 million on restoring the façade. € Star’s existing South King Street on Molesworth Street and which will Institutional investors have also been development, where tenants include H&M house over 2,000 office employees when 3.50% active as illustrated by the and Zara. Lone Star acquired the South completed. YIELDS DOWN IN Q3, aforementioned redevelopment of 26-27 King Street development in 2014 after Grafton Street by Aviva Investors and purchasing loans from IBRC and assets Finally, having acquired a 35.4% stake DOWN FROM 4.00% IPUT’s redevelopment of the former from Chartered Land. Following on from in St. Stephen’s shopping Centre in late 2015 for 60.0 million, Madison AT SAME PERIOD Karen Millen store at 72 Grafton Street. their purchase of Project Kells for €92.0 € LAST YEAR. Irish Life are also thought to be million earlier in the year, London investors International Realty and their partners examining the feasibility of amalgamating Meyer Bergman and BCP International are expected to shortly begin spending four adjoining units on Grafton Street, Property Fund are seeking planning €30.0 million upgrading and reconfiguring namely No. 47-50, in order to address the approval for 7,400 sq m of retail space and the 30,000 sq m shopping centre which shortage of large floorplates on the 9,300 sq m of office space at the corner of will further cement the long-term street. The company has seen the Dawson Street and Nassau Street. attractiveness of the Grafton Street area.

6 7 CAPITAL MARKETS/RETAIL Adrian Trueick, Director +353 1 634 2466 [email protected]

Peter Flanagan, Director +353 1 634 2466 [email protected]

Ross Fogarty, Director +353 1 634 2466 [email protected]

John Ring, Investment Analyst +353 1 634 2466 [email protected]

Shaun Collins, Graduate Surveyor +353 1 634 2466 [email protected]

Robert O’Connor, Research Analyst +353 1 634 2466 [email protected]

© HT Meagher O’Reilly trading as Knight Frank This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or RECENT MARKET-LEADING RESEARCH PUBLICATIONS liability whatsoever can be accepted by HT Meagher O’Reilly trading as Knight Frank for any loss or damage resultant from any use of, reliance on or reference to the contents INVESTMENT INSIGHT RESEARCH of this document. As a general report, this material does not necessarily represent the view of HT Meagher O’Reilly DUBLIN OFFICE MARKET OVERVIEW Q2 2016 trading as Knight Frank in relation to particular properties DUBLIN RESIDENTIAL MARKET ANALYSIS FOR INTERNATIONAL INVESTORS or projects. Reproduction of this report in whole or in part 2016

THE 2017 REPORT is not allowed without prior written approval of HT Meagher The Future Of Real Estate In The World’s Leading Cities O’Reilly trading as Knight Frank to the form and content within which it appears. HT Meagher O’Reilly trading as Knight Frank, Registered in Ireland No. 385044, PSR Reg. No. 001266. HT Meagher O’Reilly New Homes Limited trading as Knight Frank, Registered in Ireland No. 428289, PSR

OCCUPIER TRENDS INVESTMENT TRENDS MARKET OUTLOOK TRENDS ANALYSIS OUTLOOK Reg. No. 001880. Registered Office – 20-21 Upper Pembroke 2016 New Homes Dublin Residential Global Cities 2017 Dublin Office Market Street, Dublin 2. Construction Survey Market Analysis 2016 Overview Q2 2016

Knight Frank Research Reports are available at KnightFrank.com/Research