Flexible Leasing Structure gives Designer Outlet Villages the Edge

Posted on 8 October, 2014 by Kirsten Kennedy

One of the key legacies of the recession has been an apparent desire on behalf of consumers to continue to seek bargains wherever possible, whether they are shopping for weekly groceries or high end luxury items. This has seen out of town designer outlets boom in popularity, with destinations from Beijing to Bicester Village seeing ever-increasing footfall levels.

Flexible-Leasing-Structure-gives-Designer-Outlet-Villages-the-Edge

Although designers such as Louis Vuitton and Hermes are yet to embrace the concept of the outlet village, other designers including Gucci, Prada and Armani have wholeheartedly bought into the premise with multiple openings across the world giving consumers access to discounts of between 30 and 70 per cent.

As a result, designer outlets have enjoyed a growth envied by some of the world’s top traditional shopping centres according to the TIAA Henderson’s European Outlet Mall Fund manager Andrew Rich.

He believes that part of the secret to the sector’s success has been the shorter lease terms offered to tenants which have allowed average vacancy rates to fall to just 2 per cent.

“Outlet villages have fared much better during the downturn than many shopping malls did – they have proved a very strong performer during the recession,” he told the FT.

“The flexible leasing structure means that outlet operators can respond very quickly to structural changes in the global retail market as well as local requirements.

“This is the key to optimising performance, tenant mix and the shopper experience.”

In terms of market saturation, the USA remains top of the list for outlet villages, although Britain and Italy continue to progress well ahead of France and Germany. This has greatly contributed to the increase in tourism revenues here in the UK, as Bicester Village owner Value Retail estimates that three out of every four Chinese visitors to the UK count the retail park among the top attractions the country has to offer and therefore make visiting Oxfordshire a priority.

Of course, outlet villages account for only 2.7 per cent of the total shopping centre market worldwide, meaning that they are still heavily outnumbered by traditional shopping centres both here in the UK and overseas. However, Mr Rich believes that more and more developers and retailers will realise the potential in this growing sector and will begin to close the gap in the coming years.

Managing director at property consultancy Green Street Advisors, John Lutzius, believes that the leasing structure of discount outlets will continue to push rents up for some time, making them the ideal speculative development investment.

He says; “Ten years ago, yields for investors were very high because everyone was nervous about the format.

“But premium outlets have been such strong performers that yields have come down.”

With shorter lease periods leading to a greater flexibility, it certainly seems that outlet villages are defying long-established retail trends in order to battle post-recession hardship.




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