Focus on retail parks drives Sigma’s success

17 Feb

Applying the strategy that says you must speculate to accumulate has been a wise approach in terms of investing in retail centres for Irish retail asset manager Sigma. The strategy has allowed the company to grow the rent rolls for the 14 retail assets of Targeted Investment Opportunities (TIO), the Irish subsidiary of US investment fund Oaktree, simultaneously bucking the trend that has seen the retail sector struggle in the aftermath of the global recession and against the simultaneous emergence of online shopping.

Despite headlines about the death of bricks and mortar retail, Sigma has achieved 55 new lettings across the portfolio and turned around a number of vacant units and centres that suffered from neglect.

Since the business started in 2015, its portfolio has grown to 350 tenants who serve 45 million customers a year in 185,800 square metres of buildings that are worth a combined €500 million.

As well as its flagship destination shopping centre, The Square in Tallaght, it has five community shopping centres: Dungarvan SC; Harbour Place SC in Mullingar; Johnstown SC in Navan; Manor Mills SC in Maynooth and Thurles SC. It has eight retail parks in Bray, Sligo, Navan, Naas, Drogheda, Waterford, Limerick and Galway. It also has 55 acres of development land, some of which it is developing.

While the properties are not on the market, Sigma managing director Marcus Wren hasn’t ruled out selling. “We think retail parks will be easier to sell as they are more attractive to pension funds because they are easier to understand. Big boxes, large car parks, relatively low service costs – which is attractive when a unit becomes vacant.

“We are confident that there’s good demand, but [TIO] is certainly not in any hurry to sell. We might dispose of a bit of surplus land, for example, or some of our tenants have asked to buy their own units and we’ve done deals on some non-core sales, which would be peripheral to the main asset.

“If it’s the right price at the right time, no problem,” he said. “We have got some reverse enquiries from pension funds looking at some of the assets we have, even though we haven’t gone to the market and they are not on the market per se.”

Referring to TIO’s long-term approach, he said: “They’re very responsible developers. They have invested huge amounts in Ireland already. They have invested in residential and developed offices around the docklands in particular. They like the retail parks they have.”

Sigma has also seen modest rental growth: increases of a couple of per cent per annum or five to 10 per cent over a five-year period, “but it depends very much on the specific dynamics of the location, how many other units are available, was there rent review evidence to support it”. Where some retail parks had rents of less than €10 per square foot “we are now seeing €12, €15 per square foot being achievable. They are coming off a very low base and now it’s much steadier, although it’s only a couple of per cent”. Since TIO bought the 14 centres, its new tenants include Irish, Australian, US and British retailers, with the latter including Boots, Specsavers, and games and telecoms retailer CEX.

Explaining what he terms “community shopping centres”, he said these are larger than neighbourhood centres and attract customers for necessity shopping. They usually comprise a grocery anchor supermarket along with about 25 mainly local retailers – such as the pharmacist, butcher, hairdresser or barber – who have personal relationships with customers. “The logic is that people can’t get their hair cut online, can’t meet their friends and have a cup of coffee online. These centres are important for local people to meet up,” said Wren. Of these centres, four have floor areas of about 9,300 square metres each when owner-occupied anchors such as Dunnes are included, and the fifth, in Navan, is about 3,250 square metres. Their eight retail parks have a combined 120,770 square metres.

“We quite like retail parks as they have a natural synergy with omni-channel shopping as the customer goes online and orders the piece of furniture or TV. Rather than wait for 24 or 48 hours, they can down to the retail park off a motorway junction, have free parking, pick it up and off they go.” When TIO bought Navan Retail Park in 2015, it was 40 per cent vacant. Old hoardings and overgrown areas showed neglect.

“We set about cleaning it up and identified occupiers that we wanted to attract. We did deals with Home Store and More, EZ Living furniture and JYSK, so it’s now 100 per cent occupied.” There was no food and beverage offering, so Sigma did a deal with Applegreen to develop a food court and service station on two of its acres. Since then the footfall at the park has doubled. It is also considering building a leisure facility on another acre and has planning permission for three more retail warehouse units.

In Parkway Retail Park in Limerick there was a 20 per cent vacancy. “We let a big unit to Smyth’s Toys which will open in April, and the other one to JYSK, which is one of five stores we have let to the Danish household goods chain. So Parkway will have 100 per cent occupancy come April,” Wren said.

“When we bought a retail park in Sligo in 2016, there were four or five vacant units. We decided to attract a second anchor and did a deal with Harvey Norman. That deal involved moving two existing tenants. We also did a deal with a car dealer on a five-acre site where BMW will build its own unit, adding a shiny new car showroom at the front of the site. So we have really transformed that asset.”

“That’s why we are seeing positive growth. Net operating income on our retail parks has grown by almost 30 per cent since we started the business in 2015. That’s a significant uplift and that’s mainly down to leasing vacant space at market rents and in some cases adding on a bit of space and getting the right tenants,” Wren said. “We also like destination centres where people go to meet their friends and Instagram each other and they dress up in their new clothes and they want to be seen. In this world of Instagram and Twitter, people like to be out and about and showing their friends what they are up to and what they’re wearing.”

He added, “Shopping centres are evolving, so you have to have a leisure element. At The Square we have a big cinema, and food and beverage. We are full up at The Square and hence we are going for planning permission for two extensions (involving an investment of about €100 million), one to cater for the larger shop sizes required by big brands and the second to provide more food and beverage and leisure. “The Square is a natural town centre as it has a hospital and a college on its door step, county council offices, a huge amount of employment and we are closely linked with the football stadium.

“Because retail parks are so easy to get in and out of, a lot of people use them as points for business meetings or meeting friends, so there are spin-off benefits to our other retailers. Some of them pop into EZ Living or Woodies and they end up spending a few hundred euro off the back of a five euro cup of coffee. Some people are driving past retail parks that don’t have a food and beverage. We are constantly looking at these types of opportunities to enhance the attractiveness of our parks.”

He wants to nail the myth that everything is going online. “That’s not the case in Ireland. We still love to shop. We’re a social bunch, people like to get out a bit. My daughter will buy online but she still likes to go out and shop as well.”

Article by Sunday Business Post