European Outlet Centres earned over €1.1 billion ($1.26 billion USD) in investment in 2015, according to CBRE, with transaction rates more than three times those seen three years ago.
In 2015, the number of centers transacted increased by a third over the previous year, but unlike in 2014, when all of the buyers were already in the market, 70% of transactions in 2015 were to newcomers, including institutional capital. Sale in Qatar | Property Hunter Qatar | Apartments
"In the last 12 months, institutional capital has flooded the market, outbidding traditional specialist owners and driving yields lower across Europe," said Daniel Hayden, CBRE's Director of International Valuations.
"With rental growth forecasts tempered in most industries, faster growth in Outlet Centers offers opportunities for investors to raise their overall returns." Well-managed Outlet Centres around the world show strong cash flow development to investors through the shared risk / share reward dynamics of leasing systems. Property investors followed suit, concluding that Outlet Centres aid in the execution of a balanced portfolio plan that aligns with retailers' market penetration strategies, just as retailers have acknowledged the importance of outlets by incorporating them into their multi-channel delivery approach."
"Up until recently, investors appeared to leave the ownership and management of Outlet Centers to specialist funds," according to John Welham, CBRE's Head of EMEA Retail Investment. However, the sector's strong relative performance, especially during the most recent downturn, has sparked a lot of interest in direct investment in Outlet centers."
"The idea of short lease terms and turnover rentals will turn off bankers," said Marco Rampin, Head of Debt & Structured Finance at CBRE Capital Advisors. "And it was a phase of education to show them that Outlet leases do, in reality, provide income growth by turnover rents, underpinned by base rents and a degree of asset management flexibility not available in a conventional lease."
"You can't judge an Outlet Center the same way you would a shopping center; they just don't work the same way," Daniel Hayden said. The sector now has a wider lender pool as a result of these gaps becoming better understood and the risks being factored in."
"Thanks to increased investor interest and money coming into the industry, the difference between prime shopping center yields and prime Outlet Center yields has narrowed from around 200 basis points two years ago, to 100 in the early part of last year, to probably less than 50 today." And for the class's top students, the gap could be as minimal as nil."
Shopping centers in Europe have approximately 225 sq m of space per 1,000 people, according to a CBRE survey, while Outlet Centers provide less than 5 sq m. Given that it accounts for less than 2% of the overall retail landscape but has produced some of the highest returns over the last three years, it's no surprise that a supply/demand imbalance has emerged.
Mr. Welham added, "While there is far less Outlet Centre stock available than shopping centres, there has been a notable rise in liquidity as a number of existing owners take advantage of the recent increase in investor interest and increased prices." We've already seen a significant amount of sales in 2016, indicating that the industry will have a strong year ahead of it."