Eoin Feeney
Deputy Managing Director & Head of Retail Advisory BNP Paribas Real Estate Ireland
+353 (0) 1 661 1233

The global pandemic of COVID-19 has delivered shockwaves to the global retail market, forcing almost all retailers to close up shop and leading to widespread job losses – although many of these are expected to be only temporary.

The situation continues to evolve and the longer the effective retail lockdown remains in place, the more negative and drawn out the long-term consequences for the Irish market will be.

With self-preservation now the priority, many retailers are seeking concessions from landlords. These include rent deferrals, rent holidays, switch to turnover rents and monthly rather than quarterly payments. The situation of course varies depending on the use in question. Grocery retailers and other “essential” operators continue to trade and in many cases are breaking their own sales records. Their position cannot be compared to the majority of other retail occupiers, some of whom entered this crisis with zero or nominal cash flows or, in the case of say fashion retailers, are now facing a surfeit of potentially out of date stock that cannot easily be sold when they do eventually re-open their doors.

We have long highlighted the need for communication and close collaboration between landlords and tenants in order for the retail market to prosper, and COVID-19 has put this in to perspective more than ever. From what we’ve seen so far, many landlords are taking a pragmatic approach with tenants, entering dialogue early and offering some form of reassurance. There is no ‘one size fits all’ solution here and a case by case approach is required and which will reflect the individual circumstances of both the landlord and tenant.

Admittedly some landlords have greater scope to offer concessions than those that rely heavily on rental payments for personal income or to cover their own obligations with lenders. Landlords will always need tenants and tenants will always need landlords. Either way, the pain for both parties will ultimately have to be shared.

Debenhams has been the largest and most high profile retail casualty. Unfortunately we expect to see further insolvencies over the coming months, while some occupiers are likely to use the current situation as a means to streamline their store network by re-opening fewer stores once restrictions are lifted, especially where there is a break or lease expiry within 12 months. This will leave landlords with rental voids and rates/service charge shortfalls.

We are in a stronger position here in Ireland to absorb an increase in retail vacancy as unlike many of other markets, notably the US and UK, prime retail vacancy levels are low and we are generally not over supplied in terms of space. This is particularly evident in Dublin where there has been only a nominal post - recession increase in retail property supply as evidenced by the fact that the last major shopping centre opening was Dundrum Town Centre in 2005.

We expect the larger and well capitalized retailers will continue to expand, albeit at a slower rate and in a more opportunistic manner, than they would have anticipated at the beginning of this year.

There is a strong argument that COVID-19 is merely hastening the demise of retail operators that would likely have failed further down the line irrespective of the virus. Without naming names, some of retail businesses that have entered administration in the UK in recent weeks were already struggling prior to the pandemic. Further retail casualties will follow, with the challenged fashion sector being most at risk.

Once social distancing measures are relaxed, a combination of pent-up demand and low inflation should support a rebound in spending over the second half of 2020, although this depends upon the impacts of the virus on unemployment and the wider economy. We do expect an initial spurt of ‘revenge spending’ by consumers as the real physical experience of shopping is permissible once again.

Online channels will account for a record proportion of retail sales during the lockdown period. The virus may well help to further normalize online shopping, particularly among older generations that may have been reluctant to move online, or for products that consumers had previously preferred to buy in-store.

However, the notion of an e-commerce boom is overplayed in our view. It is too simplistic to suggest that in-store spend will simply move online. Certain categories such as electrical, gym and garden equipment will fare well as households find ways to fill their time at home, but online sales of fashion and big-ticket items like furniture are unlikely to benefit as consumers cut back on non-essential spending (online and offline) at times of economic uncertainty.

There is also a growing list of retailers that have temporarily ceased online trading due to supply chain issues and to protect warehouse staff. It is therefore a mixed picture for online retail. If anything, COVID-19 has reinforced for the general public, the importance and necessity of the bricks-and-mortar retail model.

For the retailer, recent events has no doubt demonstrated the importance of the ‘omni’ or ‘multi’ channel model where online and bricks-and-mortar seamlessly interact and where the whole is great than the sum of its parts. We will not be surprised to see previously pure online retailers taking up a portion of newly available retail space freed up as an inevitable consequence of the unprecedented ongoing global retail disruption.

Eoin Feeney
Deputy Managing Director & Head of Retail Advisory BNP Paribas Real Estate Ireland
+353 (0) 1 661 1233