Research article

Outlook

The UK outlet centre industry is set for further growth

The sector has an estimated market value of £2.8bn in 2016 and is expected to grow to £3.8bn (+35%) by 2020. Both average consumer spend and footfall have increased over the last decade.

Despite threats from the Value sector and ecommerce, OCs have continued to perform well in the last decade; both average transaction value and footfall are up 10% since 2012. The destination and experiential appeal of OCs is what will continue to provide a key point of difference against the threat of online retail.

Additionally, retail is now so diverse that it is no longer controversial to put discount next to full price. Both retailer and consumer accept outlets as part of the overall multichannel environment.

Discounted clothing dominates the outlet market accounting for 41% of sales, but schemes need to offer something more than price point alone, with browsing and leisure elements key drivers for the overall experience.

Outlet centres are continuing to evolve and there has been a trend for increasing the level of leisure offer; 42% of visitors make use of the F&B offer and more than half view a visit to outlet shops as a leisure trip. This is proven to increase the attractiveness of schemes to a wider range of visitors, thereby increasing dwell time, sales and footfall.

The occupational model of OCs provides flexibility for landlords and tenants, with turnover rents providing a transparent view on performance that encourages both parties to work together to optimise efficiencies. Additionally, the availability of regular performance data allows landlords to actively manage the scheme as a whole, customise marketing and maintain strategies to the benefit of all parties.

The advantages to landlords include affordability for occupants resulting in low void levels (3%), while being able to share in successes when retailers outperform expectations. Investors can closely and constantly monitor the performance of the asset and, subject to a retailer’s performance, can see regular increases to rents above levels associated with conventional leases.

Recent investment yields average around 6.5%, which puts the sector in line with Town Centre Dominant shopping centres.

A cautionary spending mind-set of consumers will continue to play to the strengths of outlet centres while economic uncertainty persists. While there has been an impact on non-essential consumer purchases over the last decade, leisure experiences continue to perform well against a Value and Discount led consumer backdrop.

The challenge for operators is to get those people who already enjoy outlets and believe in them to come more often, while trying to attract more first time shoppers and win them over.

With a multitude of new developments, extensions and investment transactions, there has arguably never been so much activity across the sector, which is testament to the importance these schemes have in meeting UK shopper’s desire for a bargain and a good day out.

Looking forward, the UK outlet centre industry is set for further growth. Despite the rhetoric that the market is losing favour and appeal from consumers, strong performance and evolution of the offer has maintained sales growth during a period when other shopping locations have struggled to remain relevant.

We see scope for further OC development in more urban settings, working in harmony with other forms of retail and leisure experiences.

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Simon Smith

Simon Smith

Senior Director / Head of Research & Consultancy
Research & Consultancy

Two Exchange Square

+852 2842 4573

 

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