Hermes shops for outlet partner

A major opportunity to buy into one of retail’s most resilient asset classes has hit the market. Hermes Investment Management has instructed CBRE to find a 50:50 joint venture partner to invest in three of its factory outlet centres – the 195,000 sq ft Clarks Village in Street, Somerset; the 200,000 sq ft Freeport Braintree Outlet Shopping Village in Essex; and the 245,715 sq ft Junction 32 Outlet Shopping Village in Glasshoughton, West Yorkshire. The assets are held in Hermes’ Factory Outlet Properties Limited Partnership and are valued at around £330m. The potential sale will be a fillip to a quiet retail investment market and even quieter factory outlet sector. Factory outlets are rarely sold, with only five of the top 30 assets in the country traded over the past decade. Sources said the recession-proof nature of the assets meant they were likely to be attractive to landlords such as Land Securities, British Land, Hammerson and Meyer Bergman as well as major pension funds including CPPIB and Ontario Teachers. Other investors showing interest in the sector include existing players such as McArthurGlen and M&G, plus LaSalle Investment Management and Orchard Street Investment Management. A spokesman for Hermes said: “We believe now is the right time to bring in a new like-minded joint venture partner to capitalise and further develop our leading outlet portfolio.” CBRE data shows that vacancy rates in the sector are consistently low, at an average of 5%, while income has continued to grow, even through the recession. In the 6.5 years to 2015, outlet centres posted an average net income growth of 38%. Hermes’ portfolio Clarks Village Where: Street, Somerset Size: 195,000 sq ft Catchment: 2.5m Key tenants: Bench, Coast, Calvin Klein, Next, M&S, Hobbs Freeport Braintree Where: Braintree, Essex Size: 200,000 sq ft Catchment: 2.3m Key tenants: Barbour, Ben Sherman, Gap, Hollister, Moss Bros Junction 32 Where: Glasshoughton, West Yorkshire Size: 245,715 sq ft Catchment: 3.3m Key tenants: Adidas, Body Shop, Mango, Peter Jones Overview: the factory outlet sector The UK factory outlet market is small, with only 30 major sites across the country. It is often viewed as more management-intensive than the traditional shopping centre market, but sentiment is changing. While tenants are on turnover rents, 80% of income is contracted, lowering the risk. Turnover rents also necessitate collaboration and communication between landlord and tenant, meaning there is full access to sales data. For investors, the market is also unlikely to be flooded, with a continuing development policy of “town centre first” meaning there is fixed supply and relatively few new centres in the pipeline. • To send feedback, e-mail samantha.mcclary@estatesgazette.com or tweet @samanthamcclary or @estatesgazette