Room to Grow (1/29)
Jan 29, 2009 8:53 AM, By Elaine Misonzhnik
Meanwhile, as U.S. consumers cut back on discretionary purchases, including furniture, entertainment and apparel, outlet centers are vulnerable due to a heavy reliance on specialty retailers, Green notes. In December, apparel chains registered a same-store sales decline of 10.7 percent, according to ICSC. Same-store sales at luxury stores, another outlet center staple, plummeted 17.4 percent. Overall, U.S. chain stores, including drug stores, declined 1.7 percent.
As a result, not all proposed projects might be able to go through. Earlier this month, for example, Prime Retail made the decision to pull out of the Villages of Urbana, an outlet center/office development in Urbana, Md. which would feature up to 600,000 square feet of retail space. The company’s executives felt the project would not meet its minimum development yield level of 10 percent. “We just didn’t feel it was the right environment to go forward with that project,” Brvenic says. (Prime’s former development partner, Gaithersburg, Md.-based Urbana Corporate Center, still plans to eventually build the center. )
Meanwhile, last fall, Tanger pulled the plug on developments planned for Port St. Lucie, Fla. and Phoenix because it hadn’t pre-leased 50 percent of the space at the respective centers, said Tanger president and COO Steven Tanger, during the company’s third quarter earnings conference call. Tanger did, however, recently sign purchase options for sites in Mebane, S.C. and Irving, Texas.
Cautious, but optimistic
Developers of outlet centers have had to amend standard operating procedures as a reflection of the challenging economic environment. Chelsea Property Group, for example, has worked with its tenants on “market specific” initiatives to drive more shoppers to its stores, notes Michele Rothstein, senior vice president of marketing with the firm. “One thing we learned from post 9-11 is to keep marketing and keep a presence with the consumer and tourism community even when there may be declines in traffic, which is a distinct possibility,” Rothstein wrote in an email. “We need to continue to keep our message strong for the future when demand for shopping and travel increases.”
Despite the challenges of the market, Chelsea is pressing on with development. It plans to open the 400,000-square-foot Cincinnati Premium Outlets in Monroe, Ohio this summer. Also in the pipeline are centers in Merrimack, N.H. and Phoenix.
And there are companies that traditionally worked in other formats that are now testing outlet center waters. Continental Retail Development has announced plans to build its first outlet property, the 450,000-square-foot Designer Outlets of MidAmerica in Council Bluffs, Iowa, which it expects to open in the summer of 2010. The center will likely draw shoppers from a 100-mile radius. Continental, according to Robinson, has received favorable feedback from potential tenants.
“More and more retailers will find their outlet division to be their most profitable division,” says Robinson. “I really think outlet centers will begin to play a more prominent role, sometimes serving as people’s first choice in where to shop.” Continental Retail Development is also working on another outlet center, Designer Outlets of Tucson, which is scheduled to come on-line in 2011.
In addition, Atlanta-based diversified REIT, Cousins Properties Inc., a builder of open-air lifestyle centers and power centers, in November announced a joint venture partnership with Chicago-based Horizon Group Properties Inc. to develop the Outlet Shoppes at Oklahoma City, a 341,400-square-foot outlet center. It is slated to break ground this winter, contingent on updated expansion plans of its prospective tenants.
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