Retail Revolutions – The Evolution of the Outlet Centre

Two key changes have occurred in the last decade. First, the offer in most schemes are no longer factory seconds or end of line products, secondly the outlet proposition has become increasingly leisure orientated, with more schemes being developed in central and urban locations.

The outlet centre market is small with only a few key operators and investors specialising in the market. However, an increase in development and investment activity, as well as several new formats appearing, means that a comprehensive commentary on the property perspectives of the sector is long overdue.

This report draws together the past, present and future consumer and development trends in the sector, and considers how the close relationship between retailer and landlord is resulting in performance growth that makes this an increasingly compelling market to invest in.

The terms Factory Outlets and Designer Outlets are both used to describe different scheme formats and FOC is an outdated term given the significance the outlet market plays in today’s retail space. For simplicity in this report we refer to all schemes as Outlet Centres (OCs).

Key highlights

■ The future of outlet centres (OCs) lies in a hybrid offer and more urban locations. With a multitude of new developments, extensions and investment transactions, there has arguably never been so much activity across the sector.

■ This reflects solid performance in an otherwise challenging retail market; since 2012, OC footfall is up 10%, average spend is up from £51 to £72.50 and frequency of visit has also increased.

■ The result is void rates of 3% and recent investment yields around 6.5%.

■ The typical size of OCs is now 140-200K sq ft, up from 80K sq ft in late 1990s. This increase is largely due to an increased leisure offer, with F&B provision doubling since 2011 to circa 8% of units, but accounting for as much as 29%.

■ Urbanisation is also a key opportunity for future growth of OCs, which have traditionally favoured out of town locations. Less than 33% of OC shoppers visit more than once a year but half of all shoppers make a local shopping trip every week. Several new developments are reaching new customers by locating closer to high population areas.