EAST RUTHERFORD, NJ-With luxury retail still in demand, even as customers are insisting on value prices, it shouldn’t be surprising that the outlet sector is one of the most successful in retail real estate, according to speakers at the International Council of Shopping Centers’ 2011 VRN Fall Outlet Leasing & Marketing Convention. The conference concludes today at the Sheraton Meadowlands here.
Rent spreads have improved in the United States, new projects are being developed, and international expansion is increasing, reported several industry observers. “This has been the strong, steady core of our industry,” said ICSC president Michael Kercheval. “It took the Great Recession to realize it.”
Though both the luxury and discount sectors have recovered, Kercheval added, the middle-level has continued to struggle. Outlets, he noted, target the aspirational shopper, and now is attracting customers on a more frequent basis. “Back-to-school sales at outlets were fantastic this year,” he said, as only 16% of parents shopped at malls for those needs.
Outlets also are seeing growth, with new development and job creation. The Outlet Shoppes at Oklahoma City opened 100% leased earlier this year. The sector consists of 67 million square feet out of 6.8 billion square feet of the total US shopping center industry, said Richard Latella, executive managing director and Americas practice leader of Cushman & Wakefield, New York City.
The vacancy rate in the sector, 6.5% is “relatively healthy,” he noted. For comparison, super-regional malls have posted a 5% vacancy rate, while neighborhood centers as a group have over 11% vacancy.
As a result, “there is renewed growth in the sector,” Latella said. “Between 2001 and 2011, 341 projects changed hands. We are seeing that outlets are an important investment vehicle right now.”
Santa Monica, CA-based Macerich Co., a developer and redeveloper of traditional centers, acquired its first outlet project, The Fashion Outlets of Niagara Falls (NY) from a subsidiary of AWE Talisman Co. for $200 million.
Opportunities do exist for further outlet expansion, Kercheval said, including value megamalls, the redevelopment of vintage malls or newer lifestyle centers, or the repositioning of older outlets. “We will see more blending of outlets with traditional retailers and restaurants,” Kercheval predicted.
Major growth is taking place overseas. The industry in Europe and the Middle East consists of 135 centers with 30 million square feet of space, while Japan boasts 20 projects with 5 million square feet, Kercheval reported. China is just at the beginning of its industry, with seven projects opening between May 2010 and May 2011, but some 30 to 40 more in the pipeline to debut by 2016. “There are so many brands moving to Asia that there will be a real need for outlets,” Kercheval observed.
Also expect South America to become an important market in the near term, he added. “This is a global trend,” said conference co-chairman Karen Fluharty, a partner at Montville, NJ-based consultancy Strategy + Style Marketing Group. “At the end of the day, consumers respond to great brands at great prices."
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
