Since 2013, property investment in European outlet centers has increased by 300 percent.
According to CBRE, European Outlet Centres received over €1.1 billion ($1.26 billion USD) in investment in 2015, with transaction volumes more than three times those seen three years earlier. items for sale
In 2015, the number of centers transacted climbed by a third over the previous year, however unlike in 2014, when all of the purchasers were already involved in the industry, in 2015, 70% of transactions were to new entrants, including institutional capital.
“We’ve seen institutional money join the industry in a large manner in the last 12 months, out-bidding conventional expert owners and driving returns sharply lower across Europe,” said Daniel Hayden, CBRE’s Director of International Valuations.
“With most sectors’ rental growth predictions being restrained, faster growth in Outlet Centers gives potential for investors to boost their overall returns.” Through the shared risk / share profit mechanisms of the leasing structures, well-managed Outlet Centres around the world provide excellent cash flow growth to investors.
“Just as retailers have recognized the importance of outlets by incorporating them into their multi-channel distribution strategy, property investors have followed suit, concluding that Outlet Centres assist in delivering a balanced portfolio strategy that aligns with retailers’ market penetration strategies.”
“Until recently, investors tended to leave the ownership and management of Outlet Centers to specialised funds,” said John Welham, Head of EMEA Retail Investment at CBRE. However, the sector’s good relative performance, notably during the last downturn, has sparked considerable interest in direct investment in Outlet centers.”
“Bankers would be put off by the thought of short lease terms and turnover rents,” said Marco Rampin, Head of Debt & Structured Finance at CBRE Capital Advisors. “So it was an education process to teach them that Outlet leases in fact deliver income growth through turnover rents, underpinned by base rents and a level of asset management flexibility that isn’t available in a traditional lease.”
“You can’t analyze an Outlet Center like you would a shopping center; they simply don’t work in the same manner,” Daniel Hayden continued. However, as a result of these disparities being better recognized and the risks factored in, the industry now has a larger lender pool.”
“We’ve seen the disparity between prime shopping center yields and prime Outlet Center yields drop from roughly 200 basis points two years ago, to 100 in the early part of last year, to probably less than 50 now, thanks to increasing investor activity and capital moving into the sector.” And for the absolute best students in the class, the disparity may be as small as zero.”
According to CBRE research, shopping centers in Europe give over 225 sq m of area per 1,000 people, whereas Outlet Centers supply less than 5 sq m. It’s no surprise that a supply/demand mismatch has emerged, given that it accounts for less than 2% of the total retail landscape but has produced some of the highest returns over the last three years.
“While there is far less Outlet Centre stock available than shopping centers,” Mr. Welham observed, “there has been a noticeable boost in liquidity as a number of existing owners take advantage of the recent surge in investor interest and rising values.” We’ve already seen a considerable amount of sales in 2016, which points to a robust year ahead for the industry.”
