Why Outlet Malls Keep Getting Bigger
The retail tenant pool has shrunk, but one segment is picking up—outlet malls. The top experts will be discussing that trend and more at Bisnow’s Houston Houston Retail Summit on Nov. 21 at the Houstonian, starting at 7am.
Among our speakers, UCR managing partner Ed Page says consumers have come out of the recession more value-conscious than ever, and a recent August Partners study says that outlet centers’ perceived value rose 5% in the past year, while every other center type decreased in perceived value. That’s leading to a lot of outlet visits—although those properties account for only 1% of US retail GLA, they get 9.4% of shopping visits.
That’s leading outlet mall developers to evaluate new sites across Houston that would never have been considered even a few years ago. When Ed helped Simon Premium Outlets acquire sites for its first two locations (Cypress and Texas City), it only considered locations 10 miles away from regional malls. But now Simon has a site under contract on the Southwest Freeway only four miles from First Colony Mall. Ed says the change comes from the fact that in some cases, the sales and profits in the outlets is actually greater than what the retail sees at its regional mall location.
To keep up with demand, retailers have started manufacturing MFO (made for outlet) merchandise. Next on Ed’s agenda: leasing the retail components of Verde Parc (120 acres along the Grand Parkway in West Houston that’ll feature office, multifamily, restaurants, hotel and retail). The site (pictured) actually used to be owned by Simon but was purchased by Parkside Capital at the beginning of the year. He’ll start talking with users and site developers in early 2015.
Read King principal Jeff Read (here's our panelist rocking some family time) is enjoying the most active development market in his firm’s 22 years in business. That’s largely thanks to the abundance of capital out there for grocery-anchored development—Read King has six suburban grocery-anchored projects in development or pre-development in Texas and Louisiana (not to mention 14 medical projects underway across Texas and Colorado). It’s working with Whole Foods, HEB, Walmart Supercenters and Walmart Neighborhood Markets--Read King is sharing the details on its first Neighborhood Market project in Northwest Houston at ICSC this week, as well as a 37-acre HEB development in Cross Creek Ranch and a 50-acre Walmart Supercenter development in the Cypress area.
One of Read King's most buzzed-about projects is Vintage Marketplace, a mixed-use development at Louetta and Cutten in Northwest Houston. Phase 1 opened four months ago with a Whole Foods and 37k SF of inline retail. Within 16 months, Read King will deliver Phase 2—a five-story office (130k SF), 20k SF restaurant village, 80k SF hospital and a 15k SF drugstore. Activity has been stellar there, Jeff says. Phase 1 only has one space remaining to lease, and Phase 2 is very well pre-leased—the restaurant village is still one month out from groundbreaking but is 75% spoken for.
Buyers are getting far more competitive on retail properties, says Marcus & Millichap VP/regional manager of Houston and The Woodlands Dave Luther, who's also a speaker at our event. That includes paying more aggressive going in cap rates and accepting a longer pro forma schedule if they can demonstrate below-market rents. Marcus & Millichap just closed a 32k SF multi-tenant center in Katy at a sub-8% entry cap where leases aren’t due for another 12 to 24 months, but buyers were OK with that because it’s a high-barrier-to-entry market with solid sustained rent growth.
1031 exchanges are also getting more active and aggressive, Dave says, especially investors moving capital from management-intensive assets like apartments and hotels. They're willing to look past issues that may otherwise scare retail buyers. His firm just sold a 21k SF multi-tenant asset that had a dry cleaner issue, but were able to work through it with a flexible exchange buyer. Dave’s also seeing an influx of foreign capital, and says those buyers are often willing to overlook things that local players get hung up on. Case in point, the $30M sale of the Villagio at Cinco Ranch (the mixed-use property is pictured) that Marcus & Millichap just closed to a foreign buyer. Come learn more about today’s retail market at Bisnow’s Houston Retail Summit Nov. 21—register here!