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What’s In With Outlet Malls

NEW YORK — When Simon Property Group debuted its latest Premium Outlets shopping center in Chandler, Ariz., in April, consumers turned out in droves for the four-day celebration, featuring live entertainment by local musicians, store promotions and giveaways.

“We were very pleased with the grand opening weekend,” said John Klein, president of Simon’s Premium Outlets division. “We welcomed large crowds and initial feedback from our merchants was very encouraging.”

While growth for most new retail, especially enclosed malls, has leveled off, outlets continue to pop up throughout the country.

“It’s the most viable development type right now, driven by the fact that consumers still want value,” said Kristin Mueller, COO of brokerage firm Jones Lang LaSalle Retail. And there is more room for expansion. According to Jones Lang, the 185 outlet centers in the U.S. have an average occupancy of 95 percent. And in 2012, the industry’s total sales rose more than 13 percent to $25.4 billion.

Real estate firms are responding with a full pipeline of development projects for 2013 and 2014.

In this year alone, Simon is adding three outlet centers in North America — in Chandler; Halton Hills, Ontario; and Chesterfield, Mo. — and expanding two more locations in Tulalip, Wash., and on Vineland Avenue in Orlando, Fla. That’s on top of its international projects in Japan, Korea and Malaysia.

Steven Tanger, president and CEO of Tanger Factory Outlet Centers Inc., noted his company is also experiencing significant growth.

“Right now, we have the most robust development pipeline in our 32-year corporate history,” he said. “We opened two new shopping centers last November — in Phoenix and Houston — both of which were almost fully occupied. And we’ve broken ground on a shopping center near Georgetown [in Washington, D.C.] that will be open before Thanksgiving.”

In addition, Tanger will begin work later this year on projects in Ottawa, Ontario, and near the Foxwoods Resort Casino in Connecticut. And the firm is partnering with Simon Outlets on developments in Charlotte, N.C., and Columbus, Ohio.

One factor aiding the boom is that many vendors are producing factory-direct merchandise, as opposed to using outlets to move imperfect or off-season product.

According to Mueller, this trend has changed the rules of real estate geography. Outlet centers can now be situated closer to regional malls and lifestyle centers without fear of cannibalizing sales from a brand’s full-line stores or retail partners.

In particular, urban markets are now ripe for development.

BFC Partners has struck a deal with the city of New York to develop an outlet mall on Staten Island — a first for the Big Apple.

And in Woodstock, Ga., located roughly 30 miles from downtown Atlanta, Horizon Group Properties and CBL & Associates Properties Inc. are jointly constructing a 370,000-sq.-ft. outlet property that is expected to draw 4 million visitors per year.

Gina Slechta, VP of marketing for Horizon, noted that in addition to being in proximity to a major highway, the mall is the closest outlet center to the Atlanta metro area. “We have a great opportunity for drawing tourist traffic,” she said.

Outlet Shoppes at Atlanta is slated to open July 18 with roughly 90 retailers, including Saks Off Fifth, Nike, Michael Kors, Coach, Cole Haan, Asics and Columbia Sportswear.

For its part, Saks Inc. is highly bullish on outlet center retail. “We believe this business will continue to be very robust,” said Rob Wallstrom, president of Saks Fifth Avenue Off Fifth. “In 2013, we’ll open seven new stores and remodel four more.”

From a real estate standpoint, he added, the firm is willing to take chances. “We’re always looking for a new market, and that could be a larger metro area,” Wallstrom said. “At the same time, there’s opportunity to expand into markets that haven’t been served yet or neighborhoods like Westbury, N.Y., on Long Island, where we opened in a mixed-use environment. What’s nice about our model is that we have a lot of different possibilities.”

And experts noted outlets are becoming much more creative in their makeups, especially in urban areas.

In the Northeast, The Outlets at Assembly Row is part of a mixed-use neighborhood that Federal Realty Investment Trust is building in Somerville, Mass., just 450 feet from the Boston city line. The outlet center, opening next spring, will border Cambridge, Charlestown and Boston. It is set to include restaurants and a movie theater, and will be surrounded by residential and office buildings.

Federal Realty also plans to add entertainment aspects. “We will be taking the next year to launch some events at the property, including a new weekly art market in partnership with Etsy [and] the fifth annual Riverfest, complete with fireworks over the river,” said Andrea Simpson, director of marketing and tourism for the company.

In contrast, most outlet centers have historically used a “racetrack” design, with open-air rows of stores facing each other.

Jones Lang’s Mueller noted that has been a deliberate, no-frills strategy to keep construction costs and rental rates low.

However, developers are now pursuing more sophisticated designs. “They’re getting better at creating a place that reflects the community and the shopper,” she said. “Retailers are investing more to ensure the buildout reflects their brand, and that’s important because consumers respond to that. And developers are doing a nice job with mixing covered and enclosed spaces, so it’s not all open-air. That has created a lot more variety.”

Global Targets
For many outlet mall developers, the overseas market is primed for growth. In April, Simon debuted the Shisui Premium Outlets in Japan, bringing its total properties in that country to nine. And later this year, it will open a new location in Korea and expand the Johor Premium Outlets in Malaysia.

Kristin Mueller, COO of brokerage firm Jones Lang LaSalle Retail, noted that among the major outlet property owners, The Taubman Co. also is looking at expanding into Asia, as well as Brazil.

However, Steven Tanger, president and CEO of Tanger Factory Outlet Centers Inc., intends to remain somewhat closer to home.

“We’ve formed a partnership with RioCan Real Estate Investment Trust, the largest REIT in Canada, where we’re going to jointly develop and co-own properties in that country,” he said. “We’ll continue to monitor other parts of the world, but there’s enough growth in the U.S. and Canada right now to keep us occupied.”

And the possibilities for the business don’t look to be slowing anytime soon. “In good times, people like a bargain, and in tough times, they need a bargain. So we’re successful in every economic cycle,” Tanger said.

 

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