These five plus the three openings of 2016 represent a significant pullback in number from recent years. By the end of this year, the total number of outlet centers will be about 220, up from 174 in 2012. But demand drivers continue to be in evidence, despite the vigilant atmosphere. Unlike the past, when many outlets were built in far-flung locations, developers continue to gravitate toward larger population centers. They are still targeting tourist destinations too. Observers anticipate that outlet centers, like other retail properties, will be exploring food-and-beverage and other entertainment-oriented options as traffic drivers.

“There has been a lot of outlet development in the last eight years, and it has been a lot to absorb, given that it’s such a small universe,” said Lisa Wagner, a principal at The Outlet Resource Group, a Chicago-based consulting firm that also invests in these properties. “We’re at a point of reset and are taking stock of these cookie-cutter, racetrack-designed centers that have worked well for a long time but that are becoming more difficult to execute.”

Among the development adjustments to date are outlet centers that max out at about 325,000 square feet, versus the more traditional 350,000 to 400,000 square feet, says Gary Skoien, chairman, president and CEO of Norton Shores, Mich.–based Horizon Group Properties. In another break from the past, notes Skoien, developers are more inclined to build two-story projects, particularly at locations inside or near metro areas. But the practice whereby developers have customarily granted retail tenants favorable leases to make up for a poor location raises difficulties, he says. “We’ve been fighting that with retailers who got great deals in basically crummy properties and are expecting them elsewhere,” Skoien said. “At the same time, construction costs have risen pretty significantly, which adds to the stress.”

Nevertheless, industry professionals remain bullish on the format’s upside. Boston-based New England Development opened its first outlet center in 2014, in Palm Beach, Fla., after years of developing neighborhood retail, mixed-use, office, hotels and other properties. The Outlets of Des Moines will be the company’s fifth outlet. And what New England Development found appealing in 2014 — namely, the opportunities to provide outlet retailers with space in new, metro-oriented markets — remains appealing to the firm today, says Michael Barelli, a company vice president who is the Des Moines outlet project manager.

Landlords are also redeveloping and expanding existing projects to meet retailer demand. Simon was finishing redevelopments and expansions of outlets in Central Valley, N.Y., and suburban Dallas over the summer. And at press time Tanger was anticipating the August completion of renovations to its Myrtle Beach, S.C., property, as well as the opening of the 123,000-square-foot expansion of its Lancaster, Pa., project, early this month. The firm is also spending some $24.3 million to remerchandise six outlet centers. CEO Steven B. Tanger acknowledges the challenging environment, but also notes that retailers still covet quality space.

“We are taking advantage of this demand to retenant underperforming retailers with higher-volume, more-popular brands,” said Tanger. The firm has invested some $300 million to upgrade, renovate and expand its centers over the past decade. “This redevelopment strategy should strengthen our future sales and cash flow.”

Few outlet centers have traded hands recently, but capitalization rates indicate healthy investment demand for higher-tier properties — ranging from 4 percent for class-A-plus properties, to 7.1 percent for ‘B’ properties, according to Green Street Advisors, a real estate research firm that began covering the sector in October of 2016. This is roughly in line with cap rates for regional malls along the same quality spectrum, Green Street says. It also justifies the optimism among industry insiders.

“It’s obvious that a typical 350,000-to-400,000-square-foot racetrack outlet center is difficult to develop and lease in today’s retail climate,” said David Hinkle, an Outlet Resource Group principal. “But we also believe that when the dust settles, the outlet sector will be one of the leaders in brick-and-mortar retail.”

Closer to town

New England Development and Simon both targeted sizable metro areas for their outlet center projects this year, though in two distinctly different regions. New England Development is putting the final touches on its Outlets of Des Moines, a 300,000-square-foot center set to open in Altoona, Iowa, in October, and Simon opened its latest outlet property, Norfolk (Va.) Premium Outlets, in June.

The Des Moines center had 24 tenants signed on as of early August, among them Asics, Levi’s Outlet Store, Tommy Hilfiger and VF Outlet. Many of the retailers are new to Iowa, says Michael Barelli, a New England Development vice president and the Des Moines project’s manager. The company plans to announce additional tenants and also to introduce some entertainment-oriented technology for the center visitors.

A metro location and the fact that the nearest outlet center was 80 miles away were among the important market dynamics, and the project is near a Bass Pro Shops Outdoor World, an amusement park and several other tourist entertainment venues. Close proximity to downtown Des Moines with its steady growth was enticing to the developer too. “It’s definitely a metro area that, as we say, ‘punches above its weight,’” Barelli said. “Incomes are above the national average, and the cost of living is below the national average. That’s a great combination.”

Meanwhile, Simon’s 332,000-square-foot Norfolk Premium Outlets includes a Banana Republic Factory, a Calvin Klein, an Old Navy and a North Face, among others, and additional openings are expected there. Simon said in a published statement that the village-style center boasts such community amenities as a boardwalk, a walking trail around nearby Lake Wright and a waterfront gazebo.