For the past few years, outlet centers have been the yin to retailers' yang, a perfect pairing as they look to attract thrifty consumers while still maintaining their brand equity.
But as more brands flock to the off-price model, they have been driving up rents and increasing competition within outlet malls, prompting one analyst to caution that these centers could be losing a bit of their luster for retailers.
"As we reflect on the past year, we believe there is further evidence that the economics of factory outlets are under pressure," Wells Fargo analyst Paul Lejuez said.
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Although, broadly speaking, new retail center construction is expected to hit an all-time low in 2014, increased demand for outlet locations has caused these centers to consistently increase their square footage over the past few years, according to data from CB Richard Ellis.
But another side effect of this demand is that in the past five to 10 years, rents for factory stores have also shot up, Lejuez said. Citing disclosures from Simon Property Group, Wells Fargo estimated that average rents at premium outlet centers last year were nearly twice what they were in 2004, and are nearing the rents seen at traditional malls. While in 2004, the average rent at an outlet mall was closer to $22 per square foot, it's now closer to $40 per square foot—less than $5 cheaper than what is seen at a traditional mall, according to the data.