While retailers and investors grapple with changing customer habits, there is one sub-sector that bears little sign of such head scratching.

In an ever-changing sector, those investing in and developing outlet retail assets have followed the straight and narrow and resisted the temptation to veer from what remains a highly focused, niche strategy.

That is not to say the concept has not been on a journey of discovery. Recent years have seen the concept evolve, with new entrants such as Blackstone and UBS joining more seasoned investors such as TIAA Henderson Real Estate, Meyer Bergman, Value Retail and mall developers McArthur Glen and Neinver, which has developed and manages more than $3bn (€2.6bn) of retail across continental Europe, of which $2bn has been outlet centres.

Resolution Property has also invested in the concept, buying assets in The Netherlands and France. Alice Breheny, global co-head of research at TH Real Estate, says strong demand for designer outlets from international retailers has “deepened the investor base”.

Retail business consultancy, FSP, which has advised Aviva Investors and M&G Real Estate on the concept, says outlet centres are “one of retail’s success stories”. The firm estimates that there are more than 200 outlet centres trading in Europe, with estimated total turnover of €10.8bn. “These span a variety of formats including luxury designer villages, specialist tourist attractions, mid-market shopping malls, retail parks, mill villages, factory shops and mixed-use entertainment complexes,” FSP says.

From what FSP describes as the “early beginnings in the US”, the concept grew rapidly in UK in the late 1990s and across continental Europe after 2000.

Designer outlets, Breheny says, have been “one of the most widely misunderstood, but strongest performing” real estate sectors in Europe in the past decade. “Relatively speaking, they thrived during the global economic downturn,” she says. “The sector is well placed to outperform in both periods of strong and weak economic climates.”

Faced with expiry, TIAA Henderson Real Estate extended its of its European Outlet Mall Fund by 10 years through a replacement pan-European vehicle.

The fund, aimed at institutional investors, will now run until 2024.

TH Real Estate, which has a $3bn global outlet mall portfolio, with assets in the UK, Continental Europe and China, launched the fund in 2004. Henderson and pan-European institutional money backed the fund, including Legal & General and CBRE Global Investors.

With assets developed by McArthur Glen, the fund has invested in Austria, Belgium, Italy, France, Germany and the Netherlands.

Taking a 10-year view may seem bold. However, Breheny says investment prospects for the sub-sector look promising.

“Long-term transaction data suggests outlets transactions represent just 2.7% of the total shopping centre market,” she says. The sector should not be disregarded due to “perceived illiquidity. As outlets continue their journey up the maturity curve, we should see yields for the sector closing the gap on full-price shopping centres.”

US investor TIAA-CREF, meanwhile, recently entered a joint venture with Neinver to target European outlet malls in its first move into the retail sub-sector.

The two firms jointly acquired a 50% stake in The Style Outlets in Roppenheim, France and also agreed to buy the Factory Outlet Annopol in Warsaw and a similar asset in Futura Park, Krakow. The joint venture will also develop Neinver’s Viladecans The Style Outlets project in Barcelona, Spain.

Late last year, Hammerson said it was investing in a joint venture to buy and manage European retail outlets, alongside APG, Meyer Bergman and Value Retail. 

The UK REIT’s £70m investment gave it a 47% stake in Value Retail’s VIA Outlets arm, which focuses on European outlets near major European cities. VIA Outlets has bought two assets this year: Batavia Stad, Amsterdam’s first outlet centre, and Fasion Arena in Prague, the largest in the Czech Republic.

On its website, Value Retail said its “Villages in Europe” assets attracted 32.5 million visits last year.

Part of Value Retail’s strategy has involved the targeting of tourism shoppers. Nowhere has that been more evident than in the firm’s central UK asset, Bicester Village, which opened 20 years ago.

The asset, 60 miles northwest of London, offers ‘luxury’ and ‘chic’ travel services to shoppers. Despite the distance, the park’s appeal can be appreciated from London’s Marylebone station.

Train services operating to and from the London terminal have put Bicester Village on the tourist trail, notably among far-eastern, brand-conscious visitors.

Speaking at EPRA’s annual conference in London last year, chairman Scott Malkin said Bicester Village was attracting a significant proportion of Chinese tourists visiting the UK.

Malkin has also taken the “Village” concept to the Far East, opening in Suzhou and with plans to roll out the concept in Beijing and Hong Kong.

More immediately, an opening is scheduled in Shanghai for this October. Despite cultural differences, the asset, next to a Disneyland resort, has much in common with Value Retail’s French asset in Marne-la-Vallée, with both assets feeding off adjacent theme parks.

It is no surprise that Malkin sees the business he co-founded in 1992 more as tourism and as an “experience” than as real estate. For investors, getting the concept right, however, is key. “Unlike an office building, it’s management intensive,” says Sven Buchsteiner, senior retail research consultant at CBRE. “You need to understand the business model and the leasing structures.”

A specialised asset manager with a retail background is the best solution, Buchsteiner says. Retailers, he explains, are fully aware of the benefits an outlet store can pass on to a high street store – both in terms of revenue and profile.

“Brands are typically in favour of expanding and increasing their profile,” he says. Buchsteiner says investors are more likely to invest in the sub-sector via focused funds rather than directly.

They are, he says, increasingly numerous.

“Of course, the fewer there are, the better it would be for investors,” Buchsteiner says, citing Germany’s planning restrictions, which consequently and indirectly keep asset values high. The country, he says, has potential for growth.

“With a lot of centres still held by private individuals, the wider European sector holds significant potential.”