One of my favourite property facts is that London – population 8.6 million – only has one factory outlet centre and it is owned by a private equity firm, writes Rohbin Marriott in his regular Private Equity letter column.
The asset in question is called the London Designer Outlet located at Wembly in northwest London. Developed by Quintain, it was opened at end-2013, and is now de facto owned by Lone Star after the Dallas-based company took over Quintain in 2015.
Selling brands at up to 70% off the regulated price seems to be catching on with Londoners and those within a car journey of it. In December, the centre enjoyed its best-ever Christmas with more than half a million visitors and like-for-like sales up 12%. It seems Londoners love to snap up bargains from the likes of Superdry, Guess and Levi’s. Which begs the question, why isn’t there another London factory outlet centre, especially when you consider that just an hour outside of London, Bicester Village has become so popular it reputedly has the highest sales per square foot of any shopping centre in the world and 65% of shoppers are foreign. Indeed, Bicester Village is the second most popular tourist destination for Chinese visitors to England after Buckingham Palace. They love saving £100s off end-of-season or samples from more than 130 fashion and lifestyle boutiques with up to 60% off all year round from brands such as Armani, Burberry, Gucci, Karen Millen and Roberto Cavalli.
Well, in fact there is going to be a second factory outlet centre in London. It has already been in the press that at the 02 Centre on the Greenwich Peninsula in southeast London, US entertainment company AEG and its new private equity partner in the retail and leisure space, Crosstree Real Estate Partners, plan to turn space on the ground floor under the famous white Dome and on an upper balcony into around 230,000 sq ft of luxury outlet shopping. Crosstree acquired its 50% interest in the leisure and retail component at the end of 2015 and plans first put on the drawing board back in 2014 are being resurrected. In fact, my spies tell me that a big marketing launch will occur in the middle of May.
If all goes well, this means that London will have two successful factory outlet malls and both will be owned by private equity. This fact is interesting because private equity firms often sell to institutional capital and while there is no suggestion either Lone Star or Crosstree plan to do so imminently (why would they?) it is noteworthy that they hold interests in this niche asset class in London at a time when institutional cognizance is growing. At the 2016 ICSC European Outlet Conference in March, Timon Drakesmith, CFO of Hammerson and non-executive director of Value Retail, said: 'Outlets have become more institutionally acceptable in the last 12 months.' Daniel Hayden of CBRE 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.'
Risk and rewards
That's good news for private equity firms holding this type of investment, which by the way function quite differently to shopping centres and hold their own risks and rewards. In an excellent article in 2012, CBRE's Mark Disney made abundantly clear the differences. There are no rent reviews, for example, and outlet centres are not so threatened by the Internet. There are many more differentiators, but suffice to say this is an asset class where relying on a few anchors is not going to work – the tenant mix is absolutely crucial to success.
The owners of the retail and leisure space at the 02 will certainly be wanting to get their marketing strategy and message to the luxury brands just right – and expect a fanfare of publicity around that.
And if you are wondering whether London can take a second outlet mall, just ask CBRE's Disney. Assessing the 50 or so outlets in the UK, he wrote four years ago: 'If Bicester could be picked up and dropped down elsewhere, there are literally hundreds of sites where the centre would trade successfully. Some (near to London) would deliver as good or better results than Bicester does currently.'
