Over €1.1 bn was invested into European Outlet Centres in 2015, with transaction volumes more than three times the number recorded three years prior, according to a new research report published by commercial real estate advisor CBRE.
In 2015 the number of centres transacted increased by a third over the previous year. But in contrast to 2014 when all of the purchases were made by investor/managers already active in the sector, in 2015, 70% of transactions were by new entrants to the sector including institutional capital.
'In the past 12 months, we’ve seen institutional capital enter the sector in a big way, outbidding the traditional specialist owners and driving yields sharply lower across Europe,' said Daniel Hayden, director international valuations at CBRE.
With rental growth forecasts in most sectors being generally muted, stronger growth in outlet centres presents opportunities for investors to improve their overall returns. Well-managed outlet centres around the world exhibit strong cash flow growth to investors, through the shared risk/share reward mechanisms of the leasing structures, added Hayden.
'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.'
Until fairly recently investors have preferred to leave the ownership and management of outlet centres to the specialist funds. However, the strong relative performance of the sector, particularly through the last downturn, has led to a significant interest in direct investment in this sub-asset class.
German pension fund Bayerische Versorgungskammer (BVK) recently emerged as the buyer of the highly-sought after Designer Outlet Centre in Wolfsburg (DOW), northern Germany, for a price believed to be around €150 mln. The deal is understood to have set a new benchmark for the sector, with the asset being the first stand-alone retail outlet acquired by an institutional investor.
'With increased investor activity and capital flowing into the sector, we’ve seen the spread between prime shopping centre yields and prime outlet centres narrow 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 very, very best-in-class, that gap could even be as low as zero,' commented Hayden.
