The battle for dominance in the thriving European retail outlet sector heated up this week as two rival joint ventures snapped up multi-country portfolios with a combined value of €1.2 bn.
On Wednesday Spanish developer-investor Neinver and US financial services group TH Real Estate announced they had acquired a portfolio of six centres with a market value of €700 mln. On the same day, Hammerson's Via Outlets venture announced the purchase of four European outlet centres valued at €587 mln.
While the actual amounts paid in these deals were not disclosed, it's clear something really big is going on when over €1.2 bn worth of assets changes hands on a single day in a relatively new sub-sector of the European retail real estate sector. CBRE notes that €1.1 bn traded in the sector during full-year 2015, a third more than the spend in the previous year, and three times the volume of 2012. The growth was achieved by a change in the type of buyers: all the deals recorded in 2014 were by investor/managers already active in the sector. Last year 70% of the transactions were by new entrants to the sector, including institutional investors.
New alliances
The narrative continues in 2016 with ownership consolidating around a handful of alliances between developer-operators and institutional-grade investors. Most of the latter have experience investing in shopping centres, but it is only in the last few years that they have moved into outlets, a concept which came from the US and took off in Europe with the founding of McArthurglen in the early 1990s.
The three largest outlet centre groups are McArthurglen-Simon Property; Neinver-TH Real Estate, and the four-headed Via Outlets joint venture of UK REIT Hammerson, Dutch pension investor APG, retail investor Meyer Bergman and Value Retail, the third largest outlet operator in Europe.
McArthurglen began as a developer-operator and sold eight projects into Henderson's European Outlet fund from 2004 and 2010. In 2013 Simon Property Group, the biggest shopping centre landlord in the US and part owner of European mall owner Klépierre, took a minority stake in McArthurglen and transformed it into an owner/asset manager, with no need to sell future projects to a third party. McArthurglen currently operates 22 outlet centres, twice the number of that of its main rivals.
Neinver, the Spanish developer-operator of outlets and shopping centres, is Europe's second-largest outlet operator and market leader in Spain and Poland. Neinver entered a joint venture with developer MAB, part of Rabobank's real estate business, in 2010 to develop a number of outlets across Europe. When the Dutch bank decided to wind up MAB this created an opening in 2014 for TH Real Estate, the amalgamation of the former Henderson property business with that of US financial group TIAA, to enter as the institutional backer.
The value of the Neinver-TH outlet portfolio is now expected to reach €1.2 bn by the end of 2016/2017. TH Real Estate also remains a partner with McArthurglen on the assets owned by the former Henderson/TH RE European Outlet fund.
Via Outlets was founded by its four partners in 2014. The latest transaction takes the total size of its portfolio to €1.1 bn across 10 assets in 10 countries.
Defensive but growing fast
Until recently, institutional investors focused primarily on prime shopping centres for steady returns. Post-crisis, the supply of shopping centres has slowed considerably, and those hitting the market are pricey. Institutional capital has therefore started to tap new opportunities that offer higher growth potential to compensate for lower returns from other asset classes.
Despite the ongoing growth of online shopping, brick-and-mortar retail assets remain a profitable and defensive investment which explains the sustained appetite for the sector. Supermarket-anchored retail centres and discounters are proving particularly resilient to the internet challenge. At the same time, upmarket retailers are looking for new avenues to expand in the luxury market. In a report released during the summer Cushman & Wakefield noted that more high-street and shopping mall retailers are opening in retail parks due to lower costs, the opportunity to test new formats and to serve as click-and-collect locations for ecommerce.
The outlet model of providing branded fashion items at a discount is also proving a big hit. 'Just as retailers have acknowledged the importance of outlets by incorporating them into their multi-channel approach to distribution, property investors have followed, concluding that outlet centres help deliver a balanced portfolio strategy that aligns with retailers' market penetration strategies,' Daniel Hayden, director international valuations at CBRE, observed earlier this year.
Development drive
Just how well the sector is doing was trumpeted by McArthurglen during the Mapic retail real estate fair in Cannes. The London-based group announced record sales growth to €4 bn across its portfolio, and 12 months of continuous year-on-year sales growth. Total sales in 2015-2016 across the brand partner stores in McArthurGlen's centres rose by 13% and by 10% on a like-for-like basis.
The outlet sector is set to grow further in the coming years.
In September Resolution Property announced construction of its 19,000 m2 Honfleur Designer Outlet in Normandy had begun after reaching the 50% pre-leasing level. A month later, Neinver and TH Real Estate opened their €80 mln Viladecans The Style Outlets in the Spanish region of Catalonia. And, McArthurglen plans to increase its total retail space from 600,000 m2 to 900,000 m2 by 2020 via the opening of six new designer outlets in five countries and the expansion of eight of its existing centres.
Heavyweight investors such as Blackstone, Ares Management and Invesco-BVK are also muscling into the outlet segment. It will be interesting to see whether we will see more mega-deals on one day, and how this might change the current pecking order in the sector.
