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Old Posted Nov 11, 2010, 5:48 PM
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Mall Developers Look to Outlet Centers as New Avenue for Growth


Read More: http://retailtrafficmag.com/developm...ters_10262010/

Quote:
As opportunities for new retail development have dwindled in recent years, REITs that have traditionally specialized in building regional malls started to look into building outlet centers. The latest firm to move into the sector is CBL & Associates Properties Inc., a Chattanooga, Tenn.-based regional mall operator, which last week announced it had entered into a joint venture with Horizon Group Properties to build an outlet center in Oklahoma City, Okla.

- The outlet sector has outperformed other retail property types during the downturn because of consumers’ focus on value. And with only 60 million square feet of outlet center space currently available in the U.S. market, there is opportunity for new construction, industry sources say.

- “It turns out that everybody is looking at developing outlet centers,” says Rich Moore, a REIT analyst with RBC Capital Markets. “It is the hottest sector in retail by far and the tenants are very interested in adding space [in that category]. The whole value concept is resonating right now.”

- CBL is not alone in its newfound interest in outlet centers. Taubman Centers Inc., a Bloomfield Hills, Mich.-based regional mall REIT, recently redeveloped its Great Lakes Crossing mall in Auburn Hills, Mich. into Great Lakes Crossing Outlets. The center now houses Polo Ralph Lauren Factory Store, Wilson’s Leather Outlet and aerie Outlet by American Eagle, among other outlet tenants. Macerich Co., a Santa Monica, Calif.-based regional mall REIT also talked about exploring outlet center development during an ICSC conference earlier this year.

- The focus on outlet centers as the next avenue for growth makes sense, given consumers’ continued preference for value retail, says Moore. In addition, while retailers remain extremely cautious about opening new regional mall stores, many are launching new outlet concepts this year. These include Bloomingdales, Jos. A. Bank and Famous Footwear, among others.

- “There are certainly enormous expanses of this country that have not even been touched by outlet center space,” Wagner says. “The outlet industry is absolutely booming right now.”

- Wagner cautions, however, that regional mall developers might not realize that the outlet center sector is not an easy one to break into. Even though regional mall REITs boast existing relationships with most national retailers, the retail executives responsible for outlet center leasing are not the same ones who look for regional mall sites, she says.

- And because retail chains have to make sure that their outlet distribution channels don’t compete directly with their wholesale operations, signing a lease on an outlet store takes a lot longer than signing a regional mall store—often, up to a year’s worth of negotiations. What’s more, regional mall operators are used to building centers that rely on a five- to 10-mile radius for the bulk of their shoppers. Outlet centers need to draw people from a radius of up to 90 miles, Wagner says.
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