‘Outlets will outperform in 2019’
Outlets are going to outperform in 2019, defying the expected slowdown in other retail sectors, delegates heard at the European Retail Investment Outlook 2019 briefing, which was held at Mapic 2018 in November.
‘I have very high expectations for 2019 because I believe there will be a pick-up after the lull of 2018, back to the strong investment market of the previous years,’ said Vanessa Gelado, Investment Director, NEINVER. ‘We are going to see significant growth.’
The outlet sector was very resilient during the financial crisis and recession, she explained, and this attracted many new investors into what was a niche sector, creating a lot of competition and yield compression which eventually led to a slowdown in 2018.
Now the true strengths of the sector are coming to the fore, Gelado explained: ‘It is a defensive play. We see in the wider retail industry many schemes that are not going to work, but we are protected from the turmoil that is happening elsewhere because we have a strong mix of brands that attract customers who shop every day.’
The primary resident catchment area is key because it provides the daily customers, so a lot of effort goes into researching local residents’ habits and purchasing power. Neighbouring areas are important because they provide the daily trippers and the weekend and bank holiday shoppers. The tourism potential is also crucial.
‘Our value proposition is great brands at a nice discount, but competition from online keeps us on our toes, so we have moved into the leisure and entertainment space,’ she said. What is most important is getting people in through the door: ‘If the scheme doesn’t have a healthy footfall then it is definitely going to suffer,’ said Gelado.
‘Footfall is the most important factor to take into consideration now and the major indicator of the valuation of a shopping centre,’ said Dariusz Forysiak, Director, Investment Services, Poland, Colliers International. ‘In the past it was turnover by square metre, but that is meaningless now in the era of online shopping.’
History is another important factor investors have to consider, said Edgar Hertog, Director investment, Savills Investment Management: ‘Liquidity is key for us, so we do not like newly built shopping centres because they can have no retail history or relevant information to guide us. We like security of income, so we are choosing factory outlets and convenience stores.’
Prime shopping locations will continue to do well in 2019, said Forysiak, footfall will grow and tenants will want to stay, but there is a slowdown ahead, because the risk of e-commerce is affecting the investment market in retail.
‘Investment volumes are down and there is a lot of uncertainty in the market, because no one knows what the retail landscape is going to look like in the future, but retailers are good at adapting rapidly,’ said Herman Kok, head of research, Meyer Bergman. ‘Retail is transforming from a purely physical business to an omnichannel business and the store is just one of many channels.’
In such an uncertain environment, investors tend to be cautious and opt for anchor cities where there is volume and growth, so prime assets in the centre become very expensive. ‘Our strategy is to look for an upcoming location within the city, follow the gentrification trend, new urban quarters, public transport developments and so on,’ said Kok.