Although Competition Remains Keen Among Outlet Mall Operators, Development Curve May Be Slowing, At Least Temporarily
Simon Property Group (NYSE: SPG
) has broken ground on a 50-store, $110 million expansion of its Chicago Premium Outlets property in Aurora, IL, which will increase the size of one of the firm's most successful outlet centers by more than two-thirds to than 170 stores.
Among the new retailers slated to open in late spring 2015 following the nearly 300,000-square-foot expansion will be Saks Fifth Avenue Off 5th.
Simon also announced openings during the current quarter of new tenants ASICS Outlet, The Disney Store, Hartmann Luggage, Loft Outlet and Tumi within the existing center.
"The expansion of Chicago Premium Outlets represents one of the largest expansions that Simon has planned to date," said Mark Silvestri, COO for Simon Premium Outlets. The mall giant operates 81 outlets nationwide.
Size and scale matter in the new round of outlet center development over the last couple of years. Chicago Premium Outlets will encompass 730,000 square feet upon completion, eclipsing rival Fashion Outlets of Chicago, which opened in Rosemont, IL, in 2013.
The number of retail outlet center projects that are either starting, under construction or being completed are down compared with last year, according to CoStar information.
About 1.4 million square feet was under construction among properties of at least 50,000 rentable square feet as of second-quarter 2014 -- nearly half the 2.7 million square feet that was under construction in the same period a year ago. Last year's spike in construction was the highest level since early 2008’s 2.8 million square feet.
In some markets, openings of new outlets may be taking traffic and market share away from existing malls and shopping centers, analysts say.
A pair of new outlets opened in St. Louis last year, and there are three proposed developments in Detroit - and neither market is an economic powerhouse, noted Ryan McCullough, senior real estate economist for CoStar Portfolio Strategy.
"I’ve heard that there are likely to be some mall casualties in St. Louis as these new centers draw away business," McCullough said. "So they could be looking at a zero-sum game, where centers compete for a finite volume of consumer dollars, and for every new winner there’s going to be a corresponding loser."