Factory Outlet
A factory outlet center is a retail subtype characterized for having outlet stores owned by manufacturers and retailers that sell brand-name discounted goods. Anchors for this subtype include those same manufacturers’ and retailers’ outlets (like major apparel or footwear companies). Factory outlets also serve a large trade area of 25 to 75 miles and average around 250,000 SF and larger in size.
Source: ICSC
Putting ‘Factory Outlet’ in Context
The Riverbend Factory Outlets, located just outside of San Antonio, TX, is a 350,000 square-foot factory outlet center owned by the University of the West Endowment. The property, acquired as a core-plus investment, serves a large trade area spanning 50 miles and draws a mix of local residents and tourists seeking discounted brand-name goods. The center is anchored by several well-known outlet stores, including Nike, Levi’s, and Coach, each offering discounted merchandise from their respective brands.
The asset manager, overseeing Riverbend Factory Outlets on behalf of the university’s endowment, is conducting the annual asset business plan review. As part of this process, they evaluate the financial and operational performance of the center and make strategic recommendations to ensure the property continues to meet investment objectives.
Property Performance Review
For the last fiscal year, Riverbend Factory Outlets generated a Net Operating Income (NOI) of $8.5 million, representing a 6.5% increase over the previous year due to higher sales per square foot and modest rent growth across several tenant categories. The center’s average base rent is currently $22 per square foot, which is in line with similar properties in the region, although there may be room for small increases in underperforming tenant leases upon renewal.
The property’s occupancy rate remains high at 96%, with strong demand for outlet space from both retailers and consumers. However, the asset manager notes that two smaller stores are nearing the end of their lease terms and that the property could benefit from rotating in more high-traffic, national brand outlets to drive foot traffic even higher.
Competitive Landscape
While the trade area remains robust, the asset manager identifies a potential threat from a new retail center under construction approximately 30 miles north. This competing center is targeting a similar shopper demographic and could divert some customer traffic from Riverbend. To mitigate this risk, the manager proposes refreshing some of the property’s common areas, such as repainting the exterior, upgrading landscaping, and improving signage visibility from the nearby highway.
Additionally, the manager recommends considering leasing to newer, emerging brands that appeal to younger demographics, which could differentiate Riverbend from nearby competitors.
Strategic Recommendations
In reviewing the asset’s long-term business plan, the manager highlights a few key strategies:
- Re-tenanting Opportunities: Negotiating lease renewals with current tenants and bringing in new, high-profile outlet brands that align with shifting consumer preferences.
- Marketing Campaign: Launching a regional marketing campaign aimed at attracting more tourists and locals from downtown San Antonio.
- CapEx Plan: Implementing a $1.5 million capital improvement plan to enhance the shopping experience, including refreshed signage, improved landscaping, and upgrades to the food court area.
Overall, the Riverbend Factory Outlets remains a solid core-plus investment, delivering stable cash flows with opportunities for incremental NOI growth through strategic asset management. By staying competitive and maintaining strong tenant relationships, the property is expected to continue serving its trade area effectively and deliver consistent returns to the University of the West Endowment.
Frequently Asked Questions about Factory Outlet Centers
What is a factory outlet center?
A factory outlet center is a retail subtype that features outlet stores owned by manufacturers and retailers selling brand-name goods at discounted prices. These centers are often anchored by major apparel or footwear companies and typically average 250,000 SF or more in size.
How large is the typical trade area for a factory outlet?
Factory outlets serve a large trade area, typically ranging from 25 to 75 miles, attracting both local shoppers and tourists seeking discounts on branded merchandise.
What types of tenants usually anchor a factory outlet?
Anchors are typically outlet stores owned by well-known manufacturers or retailers, such as Nike, Levi’s, and Coach, offering discounted brand-name products.
What strategic steps can improve factory outlet performance?
Strategies may include re-tenanting with high-profile brands, enhancing marketing efforts to attract wider audiences, and investing in capital improvements like signage, landscaping, and amenities to improve the shopping experience.
What are some risks to factory outlet centers?
Risks include competition from nearby retail centers targeting the same demographic, potential drops in foot traffic, and changing consumer preferences. Effective management involves proactive leasing and continuous property upgrades.
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