Germany still lagging in market for factory outlet centres

The retail market for factory outlet centres in Germany has long trailed its European neighbours, and the segment is likely to remain a niche offering, despite the arrival of a number of new centres in and just outside Germany, according to a new report published by property advisers CBRE.

Eight factory outlets (FOC) with gross lettable space of nearly 120,000 sqm are in the pipeline, while two are currently being built – Montabaur (between Frankfurt and Cologne), and Brehna near Leipzig. Germany and its immediate border areas have 16 factory outlet centres, of which 11 are in Germany itself – at a rate of 1.8 sqm of sales space per 1,000 inhabitants.

This compares to 8.7 sqm per 1,000 inhabitants in the UK, 7.7 sqm per 1,000 inhabitants in Italy, and 9.6 sqm per 1,000 in Switzerland. The USA has about 20 sqm per 1,000 inhabitants. The European market has seen two large transactions in the FOC sector this year, the Alpenheim Outlet Village in Switzerland, and Roppenheim The Style Outlets in France, where US investor TIAA Henderson Real Estate teamed up with outlet specialist Neinver as asset manager to spearhead its European move into the sector.

The opening of the Montabaur FOC is scheduled for the coming autumn. The centre is being developed by Dutch project developer Stable International, and will have 76 shops with 13,900 sqm. Stable International is also the developer and operator of the FOC in Brehna near Leipzig in Saxony-Anhalt. The centre is being built on the old site of the PEP – Prima Einkaufs Park – and will have 19,000 sqm when it opens in early-2016.

Lagging behind, but also in the pipeline, are further FOCs in Remscheid and Duisburg, with restricted planning permission granted for Grafschaft, Königswinter (near Bonn) and Werl. The CBRE study highlights how Germany’s highly restrictive planning and zoning policies for large-area retail developments outside of town centres, backed up by heavy resistance from local retail interests.

According to Jan Linsin, head of research at CBRE in Germany, “It can take up to ten years to realise an FOC project, and the entire process is ridden with uncertainties as to the likelihood of the project going ahead.” Hence it’s highly improbable that Germany can make up much ground on the UK, for example, which has 39 such centres.

Linsin’s colleague Jan Dirk Poppinga, the head of retail investment at CBRE Deutschland, emphasises the attractive yields in the FOC segment for investors, which are well above other returns on retail categories such as shopping centres or “Fachmarktzentren”, specialist neighbourhood malls. Recent yields on transacted FOC deals in Europe are put at between 6.5% and 10%, depending on location and perceived quality.

The attractions of the German market are that, where planning permission IS granted, restrictive German zoning laws will ensure that another such centre is unlikely to appear as a nearby competitor, thus heightening the attractiveness for investors of those centres that ARE approved.

Just this week the Düsseldforf-based project developer Clees Unternehmungsgruppe presented plans for what will be Germany’s biggest factory outlet in Wuppertal, in Germany’s most populous state of North Rhine-Westphalia.

The FOC Wuppertal, with an initial project investment of €120m, is expected to open its first 10,000 sqm sales area in 2017, with at first 65 shops. A further 13,000 sqm of lettable space is to follow, and by 2019 the centre should have 30,000 sqm with 150 outlets, making it Germany’s largest FOC. The entire centre is planned for the downtown Döppersberg district, connecting the old local Bundesbahn headquarters with the old central post office building under a new bridged and roof design. ROS Retail Outlet Shopping will be the centre manager.