While most other channels struggle with growing vacancies, outlet malls are holding onto most tenants and may have seen an increase over the last six months.
According to a study from CoStar Property Analytics, outlet center vacancy rates hit a high of 5.6 percent at the end of first quarter. But vacancy rates declined in both the second and third quarter and stand at 5.1 percent currently.
Among other channels, only malls had a lower vacancy rate at around 4.9 percent although that continues to increase from less than three percent in 2007. Lifestyle centers were at 7.5 percent; power centers, 7.7 percent; and community and neighborhood centers, around 9.8 percent. Power centers were the only other channel seeing declining vacancy rates over the last quarter.
According to CoStar Property Analytics, outlet center vacancy could return to its pre-recession level of less than four percent by the second quarter of 2010.
Value Retail News' State of the Outlet Industry report also found that, during 2008, the number of new outlet stores increased 12.6 percent to 12,924.
According to an article on costar.com, the healthier vacancy trends reflect the fact that the channel hasn't seen the amount of outright closures in other channels. Steven Tanger, CEO of Tanger Outlet Centers, also pointed out that excess inventory at retailers' full price stores is "backing up" and outlet centers are being used for liquidations. The model of comparatively low occupancy rates, as well as healthy traffic, is helping retailers do so profitably, according to Mr. Tanger. Tanger's retail sales per square foot came in at $335 in the second quarter of 2009.
Finally, especially with gas prices coming down, consumers are trekking to outlets to save money.
"People are looking for value, so they're shopping in the outlet centers and our outlet stores," said Eric Wiseman, chairman and CEO of VF Corp. VF's outlet stores have performed "consistently well" compared to the "struggle" seen at premium-priced channels, he said.
Whether consumers will continue to travel to outlet centers once the economy turns around wasn't fully explored although one outlet center exec was bullish.
"Fundamentally, there has been a large consumer flight to value, with quality and brand names remaining a key driver," said Karen Fluharty, a senior vice president at Prime Retail, the third-largest outlet center owner in the U.S. "As a consumer, if you've been able to purchase the brands you know and love at a 40 percent discount, it's very hard mentally to go back to paying full price just because your money's back and the recession is over."
Discussion Questions: How should outlet centers continue to capitalize on their increased traffic? What's the likelihood that consumers will continue to travel to outlet centers at the same rate once the recession ends?