High Net Worth Investors Flock to High Street Commercial Property

Discover why private Irish investors are turning to Grafton Street and Henry Street as institutional investors divest holdings.

The Irish high street has experienced a rollercoaster ride over the past decade, but it seems to have caught the attention of savvy investors once again. With family offices and high net worth individuals showing increased interest, the market is seeing a surge in acquisitions of top-tier assets at a time when major institutions are offloading their holdings. This unique interplay of supply and demand dynamics has kept pricing stable, creating a promising opportunity for investors. But what makes the current pricing so attractive, especially in the face of projected declines in other sectors?

The revival of the Irish high street began in 2013, coinciding with a shift towards positive consumer sentiment. However, the landscape was disrupted by a series of collapses among UK retailers, exacerbated by uncertainties surrounding Brexit, which set back the market while other sectors continued to thrive. The impact of these UK failures rippled across Grafton Street, with nearly 20 units standing vacant or available for assignment, including spaces once occupied by well-known brands like Monsoon, Oasis, and HMV.

Following Brexit, these empty spaces allowed Grafton Street to undergo a transformation, as high-quality international lifestyle brands replaced the previous occupants. These brands not only focused on in-store sales but also used the physical space as a platform for online marketing and engaging with customers. The arrival of brands such as Victoria’s Secret, Rituals, and Ray-Ban helped drive Zone A rents from a low of €350 per sq ft in 2012 to a peak of €650 per sq ft by 2019. Supported by low interest rates, yields also saw a significant recovery from over 6 percent in 2012 to around 3.5 to 4 percent by the end of 2019.

However, the onset of the Covid-19 pandemic led to another shift in this trajectory. Footfall on Grafton Street dropped from 25.25 million in 2019 to 12.8 million for 2020-21, with Henry Street experiencing a similar decline. As a result, rents and yields once again took a hit. This setback was further compounded by successive interest rate hikes in the following year, leaving the high street facing a new set of challenges.

Unlike other segments of the real estate market, the high street never fully recovered from the global financial crisis. Concerns about ESG retrofitting and the rise of remote work have further impacted the sector, causing rents and yields to regress to levels reminiscent of the late 1990s. Zone A rents for Grafton Street have fallen below €500 per sq ft, while Henry Street is around €250 per sq ft. Yields for Grafton Street are above 5.5 percent, with Henry Street exceeding 6 percent.

Despite these challenges, the sector's pricing seems to defy its actual performance. Demand for space remains strong, driven by a thriving Irish consumer base with significant savings and robust employment growth. While the return to office work has been slow, footfall from key sources such as shoppers, tourists, and students is approaching pre-pandemic levels. Additionally, the relatively low cost of making these assets ESG-compliant contributes to the pricing gap compared to the office sector.

In 2023, Grafton Street saw 88 percent of its 2019 footfall, with the lower end of the street slightly weaker at 77 percent as final units were leased up. Henry Street, on the other hand, experienced a real resurgence, with footfall reaching 106 percent of 2019 levels at the Mary Street end and 85 percent at the O’Connell Street end. The upcoming arrival of several major retailers, including Zara, Sports Direct, Flannels, Decathlon, and H&M, is expected to further boost the weaker end of Henry Street. The redevelopment of the Hammerson Dublin Central site is also anticipated to be a game-changer for the area.

Many investors are looking beyond the current perception and focusing on the data, seizing what they see as a prime opportunity to acquire quality, long-term assets at a low pricing point in the high street sector.