Outlet centers taking off in Australia

When DFO Perth opens later this year in Perth, Western Australia, it will be Australia’s 19th operating factory outlet center. It will have another distinction as well: it will be the nation’s fifth outlet center built on airport land. Of the almost 504,000 square meters of outlet gross leasable area in operation in Australia by the end of 2018, approximately 147,000 square meters of it (almost 30 percent) will be quite literally part of a major air transport hub.

Locating factory outlet centers near airports isn’t a revolutionary concept; locating them on the airfields themselves is a lot more novel--except in Australia, where you can shop for 70 percent off just a stone’s throw from a runway that can land an A-380.

Why is this the case and how much scope is there for expansion of the concept?

An important difference between Australian factory outlet centers and their counterparts in the U.S. and Europe is that the Australian developers have always preferred to plunk down their outlet centers within metropolitan areas, rather than on main road arteries that connect them. This puts outlet centers in close proximity to their customers and doesn’t make shoppers drive far.

The problem is that land zoned for retail development in Australian metro areas is prohibitively expensive. It is limited in supply and typically located around so-called ‘activity centers’, which are the creations of planners aiming to concentrate commercial activity. The drawback of activity centers for factory outlet development is that they tend to be inimical to the outlet business model, with its reliance on less expensive land.

Add to this the fact that state and local planning regimes are strict and the permitting process for a new outlet center can be arduous, expensive and in some cases unsuccessful.

So Australian outlet developers have turned to airports.

Airport land has been a location of choice for three reasons. First, it is owned by the federal government and isn’t subject to state planning laws. This means that restrictions on retail centres in adjacent neighbourhoods don’t apply on the airport land itself.

The second reason is that the land itself is not as expensive as in a typical urban activity centre.

And the third reason is the convenience of the locations an accessibility for metro area residents and travellers alike.

From the standpoint of the airport operators, factory outlet centres are nothing but good news. They are keen to nurture commercial development and have set aside large swathes of land for ‘non-aviation’ purposes, throwing out the welcome mat for factory outlets and power centers (poetically referred to in Australia as ‘bulky goods centers’) in particular.

 “A key strategy for Brisbane Airport is creating a unique place to attract and connect businesses, workers and visitors, while also creating significant and diversified economic generators through precinct developments,” said Leonie Vandeven, a spokesperson for Brisbane Airport Corporation that hosts the 26,100-square-meter factory outlet center at Brisbane International Airport.

The results have been pleasing. The factory outlet centres on airport land are highly productive, benefiting from both strong local area patronage and visitors from out of state or overseas. DFO Brisbane itself, developed and operated by Melbourne-based national shopping centre developer Vicinity Centres, had sales of A$8,269 per square metre in the year to June 2017. Another of Vicinity Centres’ airport outlet centers, DFO Essendon, in suburban Melbourne, does even better, with sales per square metre of A$9,283.

Not everyone is happy about the flying factory outlet centers. For planning purposes, factory outlet centers in Australia are generally regarded as retail centers and are subject to the same zoning requirements as other shopping centers. So doing an end-run around these requirements by opening on airport land gives them an unfair competitive advantage according to some operators of mainstream shopping centers.

Safety issues related to their proximity to runways have also reared their heads in recent times. In February 2017 a small aircraft suffered engine failure upon takeoff at Essendon Airport. It hit one of the DFO Essendon retail buildings and exploded nearby, killing all five occupants of the plane but luckily no one on the ground. (It was just before 9 a.m. and the center hadn’t yet opened for business that day.)

Still, the economic benefits of factory outlet centers are compelling to their hosts at top-tier Australian airports.

For its part, Vicinity Centres is busy developing the outlet center at Perth Airport to open later this year. The project is to  have approximately 24,000 square meters of GLA spread across 110 stores. And it probably won’t be the end of retail development at the airport.

Perth Airport CEO Kevin Brown is thrilled:

“The new DFO Perth marks the start of an exciting phase in the evolution of Perth Airport,” said Pert Airport CEO Kevin Brown. “It is the first of a number of retail opportunities that we look forward to developing on the airport estate in line with our master plan. The DFO will contribute more than $120 million a year to the state’s economy, and will create about 900 direct jobs, including more than 250 jobs during the construction phase and 650 ongoing retail and hospitality roles at the completed center.”

Could there be more airport factory outlet projects elsewhere in Australia?

There are hundreds of regional airports around the country with sufficient surplus land to support a shopping center. In many instances, the airport operators are actively seeking non-aviation-related activities to support their economic survival. However, most are of no interest to a factory outlet developer because the local market cannot support a major retail project of this kind.

Still, the door isn’t closed. A factory outlet center is in the master plan for Parafield, an airport in suburban Adelaide, and one has long been mooted for Hobart Airport in the island state of Tasmania. So it’s unlikely that Perth will be the site of the last of the airport-based factory outlet center.
 

By Michael Baker