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Retail outlet mall sector comes of age with record-breaking deals

  • Outlet deal is largest European retail transaction of 2016
  • Average European outlet rents have increased by more than 10% over the past year according to research
  • Rapidly rising rents in popular locations has incentivised developers to consider outlets as new retail channels.

Shopping outlet malls have come of age from an investor and retailer perspective according to research from Cushman & Wakefield – underlined by two concurrent pan-European sales by the IRUS European Retail Property Fund.

The deals comprising 10 centres completed for a reported €1.28bn and represent the largest European retail transaction of 2016.

IRUS, one of the largest pan-European private-capital property investment funds specialising in outlet centres with a total of 11 outlet properties, is sponsored and managed by NEINVER Group.

In one transaction, Cushman & Wakefield advised TH Real Estate on the acquisition of six outlet centres located in major cities in Spain, Italy and Poland worth over €700m, on behalf of a Joint Venture between NEINVER and TIAA.

Separately, VIA Outlets (Hammerson, APG, Meyer Bergman and Value Retail), agreed to buy four European outlet centres, located close to major cities in Germany, Portugal, Spain and Poland, for a total gross asset value of €587m (£502m).

Not only was this one of the largest transactions of any sector in 2016 – it also, in a single day, eclipsed the entire outlet centre transaction volume for 2015, according to Cushman & Wakefield. The transactions have been agreed at a time of unprecedented demand from investors for outlet properties due to the stellar performance that has been witnessed in recent years, according to the research.

Coupled with yield compression in the full price market, institutional investors have turned their attention to outlets. The traditional yield gap between full price and outlet centres across Europe has shrunk dramatically over the past year, with the expectation that it could narrow further.

Cushman & Wakefield research has shown outlet floor space has grown by 6.4% per annum over the past five years – almost double the rate of traditional shopping centres – as investors and retailers increasingly target this once-niche part of the market. Sales growth has increased by around 8% per annum over the past three years while European outlet rents have increased by more than 10% in the past 12 months alone.

This growth is driven by operators and developers investing in the quality and experience of their centres over the past decade, according to the new research. Contributory factors include designer retailers no longer being fearful of brand dilution and accepting outlets as a suitable channel for distributing surplus stock, which has increased their consumer base. Additionally, rapidly rising rents in popular retail locations have incentivised developers to consider outlets as new retail channels.

The most recent data available on the sector shows that growth on year-to-date sales up to the third quarter is around 4% for occupied space with turnover growing by nearly 7% due to increased floor space. During the Christmas trading period, outlets are likely to continue to exhibit their strength and resilience, with the current currency fluctuations likely to add to the expected growth in some locations. 

Cushman & Wakefield’s Valuation & Advisory team, which values 75% of European outlet malls, said the market has now been granted sector recognition. The past five years show performance-based rents delivering rental growth not seen in traditional properties with market-determined rents. This growth has helped prompt additional development in the sector.

Richard Ching, Partner in Cushman & Wakefield’s Outlet Valuation Team, said: “The European sector has come of age and is no longer a specialist, niche market. This has been demonstrated by the most recent deals which are significant by any measure. Over the past three years, sales turnover has risen broadly by 8% per annum, an income growth rarely seen in other sectors, raising the demand for market-wide performance data which until now was notable by its absence. Having tracked the outlet market in insolation for the past three years we have witnessed the exceptional performance of the sector, and the resulting move towards institutional acceptance.”

He added: “This sector is not without risks. Any new entrants to the market would be advised to form a partnership with an established outlet operator. As supply continues to remain constricted alongside increased investor appetite, those armed with accurate market knowledge and a risk-mitigating operating plan will be best placed to take advantage of the exceptional returns witnessed.”

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