Zone A retail rents on Grafton Street have risen 25 per cent over the past year as occupiers have driven the vacancy rate on Ireland's premier shopping pitch "essentially to zero", according to a report by agent Knight Frank.

“Headline rents on Grafton Street now stand at €6,500 per sq m,” the report states. “However, unlike the office and residential sectors where rents are near pre-crisis highs, prime retail rents still trade at values that remain significantly below their pre-crisis peaks, indicating that there is plenty of scope for further rental growth in the coming years.”

Evidence of this comes from property fund Iput, which is renovating 72 Grafton Street and marketing the revamped space at €7,500 per sq m (€696.75 per sq ft).

Competition among investors to acquire property on the street drove yields down to 3.5 per cent in the third quarter of 2016. Meanwhile, the lack of space on Grafton Street is forcing retailers into surrounding areas. “This is particularly so among larger retailers for whom the small floorplates on Grafton Street act as a further limiting factor,” according to the report. “As a result, Grafton Street is becoming the focal point of an ever expanding retailing hotspot which extends beyond the street itself.”

The report suggests that the “main obstacle for buyers” looking to acquire assets on the street is the substantial, long-term holdings of Irish institutional investors on the street.

‘Grafton Collection’

Further evidence of this comes from Irish Life, already one of the largest property owners on the street, which recently bought 50 Grafton Street for €6.75 million at a net initial yield of 5.39 per cent. This adds to its 2015 purchases of 7-11, 85-86 and 57-58 Grafton Street.

One of the few Grafton Street buildings currently on the market is a substantial retail block at the Grafton/Duke Street corner. Part of the so-called "Grafton Collection", which also includes retail assets in nearby streets, it's on the market for €40 million through Savills, which would give a yield of 4.62 per cent. Knight Frank is also marketing the retail-focused "Madrid Portfolio" of assets in the fast-appreciating streets to the west of Grafton Street.

According to the report, the rise of online shopping is a “major challenge” facing high street locations, but “prime high street retail is benefiting from internet shopping as these stores become showrooms for the leading brands to display their merchandise, with shoppers purchasing online at a later date”.

This, along with rising consumer spending, is fuelling a wave of redevelopment along Grafton Street and surrounding areas. Brown Thomas, for example, has recently completed a €20 million upgrade of its flagship Grafton Street premises – including spending €1.5 million on restoring the façade. Iput, too, has recently restored the former Karen Millen store at 72 Grafton Street. Meanwhile, Irish Life is examining the feasibility of amalgamating four adjoining retail units at 47-50 Grafton Street.

International retailers

But it is really on surrounding streets where developers and investors are seeking to take advantage of the demand from international retailers for larger floor plates closer to Grafton Street.

Property fund Lone Star, for example, is appealing to An Bord Pleanála to allow a mixed-use scheme on Chatham Street, just off Grafton Street, which will feature a number of retail units and back onto Lone Star's existing South King Street development where tenants include H&M and Zara.

London investors Meyer Bergman and BCP International Property Fund are seeking approval for 7,400sq m (79,653sq ft) of retail space and 9,300sq m (100,104sq ft) of office space at the corner of Dawson Street and Nassau Street.

Meanwhile, Friends First have submitted plans for a substantial upgrading of Royal Hibernia Way which is expected to benefit greatly as a hop-off point for Grafton Street when the Luas stop on Dawson Street opens next year.

Construction work is also underway on Green REIT’s One Molesworth scheme which will have 2,137sq m (23,000sq ft) of retail on Molesworth Street, while a €30 million revamp of St Stephen’s Green Shopping Centre is expected to get underway shortly.

Grafton Street, which was pedestrianised in 1982, has an annual footfall of 57 million and contains 91 retail units.