The outlet sector is attracting a much broader spread of institutional capital, according to speakers at the 2016 ICSC European Outlet Conference.

The outlet sector is attracting a much broader spread of institutional capital, according to speakers at the 2016 ICSC European Outlet Conference.

Speaking at the ICSC conference, Timon Drakesmith, CFO of Hammerson and managing director of Premium Outlets said: ‘Outlets have become more institutionally acceptable in the last 12 months. The sector is no longer limited to big funds and operators.’

Two key deals in 2015 and another in early 2016 have changed the landscape, delegates heard.

In late 2015 M&G Real Estate acquired McArthur Glen-run designer outlet Bridgend Designer Outlet centre in south Wales from TH Real Estate. The investment volume of £115.5 mln (€164 mln) reflects a net initial yield of 5.75%. Of the eight bidders, roughly half were institutional investors.

In France, the Roubaix and Troyes outlets were sold last year for more than €200 mln to a fund managed by Ares Management. Resolution acquired both properties in 2010 and repositioned them as premium retail outlets occupied by high-end brands including Hugo Boss, Armani, Superdry and Esprit. Net operating income increased by 50% at Roubaix and 40% at Troyes.

According to Richard Ching, of Cushman & Wakefield, the real mover is the expected sale of Wolfsburg in Germany. While the majority of bids were in line with expectations of a net initial yield of 5%, the price offered by a German institution was far higher, he said. But, he added, the new money is taking its time to do the deal.‘We will have to see whether the sale goes through,’ he said.

One of the reasons put forward for the new popularity of a previously niche retail sector is that retail sales across outlets have grown about 10% per annum since around the financial crisis, with 8% rental growth.

Daniel Hayden of CBRE, also speaking at the conference, added: ‘Investors have realised what retailers have already cottoned on to: multi channel. They should not just be exposed to shopping centres and high streets. Outlets are complementary to shopping centres in a balanced portfolio.’

Speaking during conference networking, director at retail consultancy FSP, Ken Gunn, said that investors liked the fact that the Wolfsburg outlet in Germany was showing growth in a stagnant market. ‘It’s a quality location with a quality operator. Investors are looking for the security of a quality operator.’

But Gunn warned: ‘What you are not seeing is investors forward-funding, they are going for established assets. It’s difficult to get new schemes off the ground. And outlets have traditionally been developed independently.’

Will this bull market for outlet centre sales continue and what are the risks for them? According to Cushman & Wakefield’s Ching, there is limited space for physical growth, and there are only a limited number of brands. ‘The good thing is that brands are reinventing all the time.’ That said, the number of luxury brands is leveling off, he added.

According to CBRE’s Hayden, the biggest risk to an outlet landlord is getting the tenant risk wrong. 'If you pitch your tenant mix to the wrong consumer profile you won’t get the performance that you could if you pushed it to the right niche. It’s all about the right partnerships with the right tenants and putting them into the right centre. That’s where I see the risk.’