Outlook brightens for outlets

ICSC.org - While economic indicators point to a continued, albeit slow, recovery, unemployment and consumer confidence remain the two main sources of concern for landlords and retailers, noted Cushman & Wakefield’s Richard W. Latella at VRN’s Fall Outlet Leasing & Marketing Conference Monday.  Consumer sentiment fell in August by 19.2 percent year-over-year, and stands just 40 basis points above the low set in November 2008, he noted. GDP growth is expected to total 1.6 percent in 2011, he said, quoting a Wall Street Journal article. Retail sales growth for the year will reach 3.8 percent, according to an ICSC report.  There are other more positive signs of recovery, though. Retail real estate transaction volumes in the U.S. reached $22.1 billion in the first seven months of 2011, marking a 184.4 percent increase over the same period in 2010. Retail cap rates averaged 7.56 percent in the second quarter of this year, according to Cushman & Wakefield, representing a year-over-year decrease of 39 basis points.  Store closings have dropped sharply, with a total 2,329 in the first half of this year, compared to 4,396 for the same period last year, according to ICSC. And new store openings are up, he noted.  The outlet sector is attracting particular interest, says Latella, an executive managing director who is Americas practice leader in Cushman’s Retail Industry Specialty Group. “There are real signs of growth in the outlet sector,” he said.  Some 36 projects have changed hands in the past two years, for a total $2.8 billion, compared to just $562 million in transactions in the two years from 2007 to 2009. There is particular interest coming from conventional mall REITs, such has Macerich, he noted. “There is a flight to quality favoring trophy and core assets.”  Retailers too are being attracted to outlet centers by their lower operating costs and higher sales-per-square feet performances. Outlet REIT sales reached a record $482 per square foot last year, compared to $437 for mall REITs, he said, and annual growth in outlet center sales has outstripped that of malls by an average of 91 basis points since 1995.