A new study on the drivers of retail property rents reveals that job security is more important than personal finances in driving consumer demand and retail rents.

Dr. John McCartney, Director of Research at Savills Ireland and Dr. David Duffy, Senior Research Officer at the ESRI, will present their study ‘What Explains Retail Rents in Ireland’ at the annual conference of the Irish Economic Association tomorrow.

Speaking ahead of the conference, Dr. John McCartney commented:

“Continued deleveraging by NAMA and other financial institutions will see some major retail portfolios brought to the market over the coming months.  Investors’ appetite for these assets will depend on their expectations of future rental growth. While the leading indicators suggest an improving outlook, the real challenge is to understand how quickly and how much this general improvement will impact on retail rents.”  

To shed light on these issues McCartney and Duffy have analysed the statistical relationships between retail rents and a range of potential explanatory variables over the last 18 years.  This research shows that employment is by far the most important factor, with a 1% rise in jobs growth bringing about a 0.9% increase in rental growth 15 months later.  Surprisingly wage and disposable incomes growth are much less influential. 

In addition to clarifying which factors are important and how much each factor impacts on shop rents, the research provides a forecasting framework for the national rents index.

“The forecast model suggests that the gradual recovery in overall retail rents which has been in place since last year will continue over the coming twelve months.”  

However the authors emphasised that their model forecast the national baseline and, within this, certain locations and retail formats will continue to show stronger rental growth.”