Factory outlet villages
Source: gov.uk (2025-04-28)

This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.

1. Scope

1.1 This instruction applies to factory outlet villages (FOVs). A factory outlet village is a destination out of town retail development. Each village typically, but not exclusively, comprises over 40 units let predominantly as manufacturers’ outlets and may also include restaurants, a food court and ancillary accommodation including a management suite, public toilets, children’s play area, car parking and coach parking. Such centres allow manufacturers and retailers to dispose of surplus and obsolete stock.

2. List description and special category code

3. Responsible teams

3.1 Specialist valuers are responsible for the survey and valuation of this class.

4. Co-ordination

4.1 The Factory Outlet Villages Class Co-ordination team (CCT) has overall responsibility for the co-ordination of this class. The team are responsible for the approach to and the accuracy and consistency of Factory Outlet Villages valuations.

4.2 Valuers have a responsibility to:
- follow the advice given at all times - practice notes are mandatory
- seek advice from the co-ordination team before valuing a new hereditament
- not depart from the guidance given on appeals or maintenance work, without approval from the co-ordination team
5. Legal framework

There is no specific legal framework for this class.

6. Survey requirements

6.1 Inspections should be carried out in accordance with the Valuation Office Agency Code of Practice.

6.2 Shops in Factory Outlet Villages should be measured to Gross Internal Area (GIA) for rating purposes in accordance with the RICS Code of Measuring Practice 6th edition or its replacement. This is how units are let in the open market and therefore the only method to be adopted.

6.3 Consistency of approach is essential and surveys must be carried out in accordance with the guidance contained within Property Inspector Manual (subject to paragraph 6.2 above).

6.4 Inspection

An inspection checklist is appended at Appendix 1 and should be completed for all new properties and updated for maintenance work and stored in the property folder of the Electronic Document Records Management (EDRM) system.

6.5 The Survey Template can be found in EDRM. This will need to be completed following inspection.

6.6 Plant and machinery

Adequate information regarding all items of Plant & Machinery should be carefully recorded, including those frequently found, such as type of air conditioning, heating, fire protection, security camera systems, lifts etc. Details will be required not only to assess their effect on value, but also in the event of particulars being sought by the ratepayers or their agents under the relevant statutory provisions. Reference should also be made to Rating Manual Section 6: Part 5: Plant and Machinery and the VOA Rating Cost Guide.

6.7 Heating and air conditioning - The extent and effectiveness of heating and air-conditioning systems will vary significantly according to the type of system installed, the range of facilities offered, their performance, and the degrees of environmental control. A basic air conditioning system usually incorporates facilities for heating, cooling and ventilating. More complex systems also control humidity, monitor the through-flow of air, filter, purify and deodorise the re-circulated air, and offer localised control in different parts of the premises or parts of a floor.

6.8 Fire protection and security systems - These may cover the whole outlet village and/ or individual unit systems. They should be clearly identified and recorded.

7. Valuation considerations

7.1 Background

In order to maximise the return of the individual retailers it is in the landlords’ interest to keep tight control over the tenant mix, management and promotion of the centre as a whole. This enables traders to complement rather than compete to the benefit of all. Rents under turnover leases are more directly related to an occupier’s ability to trade. Turnover and profit margins will vary and so will the level of rent a tenant is able to pay. Adoption of turnover leases therefore gives the landlord more flexibility to ensure the optimum tenant mix, a range of complementary traders to maximise the centre turnover and therefore the rental income as a whole. Generally speaking, the valuation approach reflects these circumstances by deriving a standard unit price applicable to all standard units (see paragraph 7.3).

7.2 Rental Basis

This class is valued by reference to turnover rents. Turnover Rents are comprehensively dealt with in the rental adjustment practice notes in the Rating Manual Section 4: Part 1 Practice Note 1 - Rental Adjustment. The Practice Note for the appropriate list year should be read and understood by anyone dealing with this class of property. It should be remembered that all turnover information is confidential and should not be disclosed to third parties. Data provided centrally by owner/ landlords for all units on their sites is to be treated accordingly. A bespoke ‘turnover rent’ Form of Return VO6066 is also available for individual Units to issue, which will be similarly treated. Contracting out of the Landlord and Tenant Act 1954 may be normal practice.

7.3 The standard unit

Analysis of the lease agreements for these sites indicates that the individual tenants’ turnover is the significant factor in determining the rent agreement and as such the individual unit position within the site is not a value significant element. The majority of units within a site fall within a standard range of sizes and the rental data provided by these units is analysed to determine the standard unit price applicable for the site. Typically the standard unit range is from 50 - 500m² but the units at the site will determine the size range for that locality. Units not considered standard, for example large units, kiosks and food courts are considered separately.

7.4 The standard unit value (per m²)

The standard unit price per m² must fairly reflect the maintainable level of value evidenced for the standard units on the site. Traditional analysis of total rent paid is therefore inappropriate for turnover rents, or rents comprising a turnover element as these are directly related to the ability to trade of individual occupiers, for which turnover and profit margins vary.

To ensure analysis derives a value which is most representative of the rental level to be expected under the hypothetical tenancy, the two rental elements which make up the standard unit rent are considered separately.

The base rent element, is that level of rent which is guaranteed. This will normally be a price per square metre, which is usually consistent across a development. This element of rent will often be paid quarterly in advance, as in the case of traditional leases.

The turnover rent, is that element of rent which is variable. This is subject to achievement of pre-agreed turnover levels being exceeded.

7.5 Analysis of standard unit rental data

Individual analysis will generally depend on the standard lease details pertinent to the site and the specific detail of the gearing of the base/turnover elements. To reduce the number of subjective assumptions made to derive the standard unit price, it is recommended that valuers make a median analysis of the two separate rental incomes, base and turnover, for all standard units paying full years rent at AVD.

A median analysis of the two income streams, base & turnover is both simple and transparent and produces values representative of the mainstream market for the units on the site. Using the median on the entire data set, rather than measuring the average having omitted some outliers, gives a true measure of the most representative rental level and no further subjective adjustments to either base or turnover element are required.

The basic price of standard units has been derived from a range of units with various advantages and disabilities reflected in the rent, it is not therefore expected that any end allowances will be appropriate.

7.6 Non standard units

Large units, kiosks and food courts are not considered standard units as defined in paragraph 7.3 above and therefore the unit price (m²) to be adopted will be derived from analysis of the rental data for the units concerned, comparable units and with reference to the site standard unit price per m².

7.7 Comparability

In all cases where comparability with another site can be anticipated it will be prudent to make a check valuation on a like for like basis

8. Valuation considerations

8.1 Fitting out

If the unit is a new let at base rent in shell condition, and the tenant has undertaken the fit out, then the actual fit out costs should be analysed and an addition made to the rent. In the absence of any cost information see the Practice Note for guidance. It should be noted that the addition does not include air conditioning. Air conditioning should be treated separately in accordance with the guidance given below. If all units on the site are let in shell condition then the standard unit price derived from the shell rents should be adjusted to reflect the tenants fit out.

8.2 Air conditioning

Where the unit demise includes air conditioning the value is considered reflected in the rent. If air conditioning is evidenced as the norm for the site, its value will be considered reflected in the standard unit price adopted. In this situation units outside the norm i.e. without air conditioning will require an allowance to reflect its absence.

If air conditioning is not the norm, the standard unit price will reflect its absence and an addition will be required to those units where air conditioning has been installed but not reflected in the rent. Where a unit excluding air conditioning is demised and air conditioning is installed as a tenant’s improvement then it should be valued in accordance with Rating Manual: section 6 part 3 - section 920 practice note 1 air conditioning in shops (for the appropriate list year). The GIA served by the air conditioning should be data captured as an ‘other addition’.

8.3 Fire protection and security systems

As for air conditioning above, if these items are tenants’ improvements which are not reflected in the rent deriving the standard unit price, they should be valued in accordance with the guidance given in the rental adjustment section of the Rating Manual: section 4 part 1 - practice note 1 Rental adjustment starting at paragraph 14, Improvements; the plant and machinery section of the Rating Manual: Section 6: Part 5 and the VOA Rating Cost Guide.

8.4 Customer car parking

Adequate provision of customer car parking is an essential feature of factory outlet sites, both on grounds of planning and store operator requirements. In cases where the car parking forms part of the main retail site, its presence can be said to be reflected in the value of the units.

However, if the car parking area forms a separate hereditament from the retail site, in the rateable occupation of the site operator, some other person, company or public body, then it should be valued at a level appropriate to the locality.

Guidance notes on the rating of retail centre car parks can be found in Rating Manual: section 6 part 3 - section 200 car parks practice note 1 for the relevant list year.

8.5 Tenant added first floors

When considering evidence in arriving at values to be placed on any tenant added first floor space, it is important to follow the guidance found in the Practice note for rental adjustment Section 4 - Para 14: Improvements. Any values resulting from analysis of tenant added first floors should be recorded in RSA as an ‘other addition’ SFF (First Floor Sales) or RSF (First Floor Stores - Retail)

8.6 Automatic Teller Machines (ATMs)

For advice see Rating Manual: section 6 part 3 -section 1120 sites of automatic machines

8.7 Kiosks and Retail Merchandising Units (RMU’s)

Location within the centre and footfall are the major factors determining value. There is usually sufficient rental evidence and the approach is either a spot figure or on a £/m² basis where devaluation of the evidence results in a consistent ‘tone’.

8.8 Concessions

Where all the ingredients of separate rateable occupation are apparent then the hereditament so identified should be separately assessed. It will be a matter of local judgement as to the appropriate level of value. The best evidence is likely to be derived from the payments made for the concessions themselves adjusted as appropriate.

8.9 Residual Mall Assessment

The residual mall assessment remains in the control of the landlord and comprises short term, seasonal, temporary stalls and other income generating features such as vending machines; children’s rides, Father Christmas grotto, and similar.

8.10 Stairs, lifts and escalators By improving access to an upper floor the tenant is seeking to enable a better and more valuable use of this floor.

8.11 Mode and Category of Occupation

The hereditament must be valued vacant and to let for a use within the same mode or category of occupation as the actual use - for example a restaurant must be valued “vacant and to let” as a restaurant. The measure of value is, therefore, what the market would pay to occupy the hereditament in its existing physical state, and for a use within the same mode or category as the actual use. See Rating Manual Section 3: Part 2 – MCC Including mode or category Appendix 1: The ‘City Duck’ case.

8.12 Key Rents

All properties where a key rent has been identified must be inspected.

9. Valuation support
- Rating Support Application (RSA)
- Survaid
- Class Coordination Team Retail 3 (Factory Outlet Villages)
- National Valuation Unit
Appendix 1 – List of Factory Outlet Villages sites for class co-ordination purposes and owners/managing companies

Appendix 2 - Inspection checklist

Factory outlet villages inspection checklist (https://assets.publishing.service.gov.uk/media/67b89a61d157fd4b79addcfb/Inspection_Checklist_-_Factory_Outlet_Villages.docx)

Practice note: 2023 - factory outlet villages

1. Market Appraisal

1.1 Factory Outlet Villages (FOV) are mainly situated just outside of large cities/ towns and offer well-known high end brand manufacturers the opportunity to sell their products to consumers at a significant discount. Unlike conventional stock sales, goods are not sold at the place of production. Instead, factory outlet villages are typified by a number of individual outlet stores in which different brand manufacturers sell discontinued lines, slightly imperfect goods and surplus stock. For retailers, outlet villages have offered an avenue to sell out-of-season stock, while attracting new customers to the brand.

1.2 There are two types of factory outlet centre trading in the UK. One is the conventional mall style with rows of shops facing each other down a mock street. The other type of centre is a hybrid, combining conventional malls with leisure style shopping aimed at providing a family day out. It is estimated that clothing accounts for just over 40% of the market, followed by footwear 16% and accessories 14%.

1.3 The majority of factory outlet centres are doing very well in terms of footfall and money spent and are defying the trend of the shopping centres and high streets which are in decline. Factory outlet centres have a low level of voids, compared with the high street. Low void rates can in part be attributed to lower numbers of over-rented units which are a direct consequence of turnover leases, the landlord’s “hands on approach” and ability to manage the tenant mix to optimise trading. Factory outlet retail is considered by its many customers as a leisure experience. There is an appetite for designer goods at a bargain price – even if they are slightly sub-standard. Since the pandemic, there has been a pent-up willingness to spend.

1.4 There are 30 Factory Outlet Villages in England and Wales (October 2021).

1.5 Not all developers have had due regard to the fundamental factors which determine the success of such developments. This has resulted in a wide variance between the best and worst performing centres. Unlike traditional retail leases the landlord shares the risk with the tenants through the uniform application of turnover rents. This has meant that the best operators have shared in the success of those centres that have exceeded expectations whilst others have shared the problems in those centres that failed to achieve their original plan.

1.6 The UK is Europe’s most mature Factory Outlet Villages market, and its factory outlet centres are an established part of consumer life. A consolidation is occurring within the sector as well as the failure of some centres, which have not performed to the level expected by the developers. The UK’s designer outlet market is fundamentally changing, with investments in existing centres and new urban schemes capturing a younger consumer.

1.7 The focus in the UK is directed at extending and upgrading existing successful schemes. Institutional investors are investing in the sector with expansion, redevelopment and improvement of their existing Factory Outlet Villages.

1.8 Centres are very tightly managed and this coupled with the appeal for fashion has enabled strong growth compared to mainstream retail. The balance between retail and food is a fine one and the centre manager’s skill in getting the mix right is a major contributor to the success of the centre. This encompasses Retail Merchandising Units (RMU’s) within the mall itself. Unlike mainstream retailers who can locate in any town and development, outlet centre occupiers have less to choose from because most of the lease agreements contain restrictions on competition in the form of “radius clauses”. These clauses forbid tenants to open up shops in another outlet mall within a certain radius of the centre they are in. Whilst the UK designer outlet sector continues to perform well, it is increasingly competitive with new schemes, particularly those in close proximity to city centres, disrupting the market.

1.9 Location and catchment area are crucial and the towns and cities within it need to be large enough to support turnovers. Cheshire Oaks also benefits from a large population in nearby Manchester and Liverpool who enjoy luxury shopping.

1.10 UK centres typically offer consumers a selection of brands which are not always available on local high streets. This creates large catchments which are two to three times the size of catchments on which large town centres depend, while low visit frequencies and the complementary nature of goods means that they have very limited impact on full price shopping locations. Discounted prices encourage shoppers to experiment with new brands, increasing the importance of outlet centres for brands, beyond just disposing of unsold merchandise. In the USA, recent research shows that large numbers of upscale brand shoppers have their first experience of that brand at an outlet centre, graduating to the full-price store in time. As a result, outlet centres are no longer a backroom function for brands but an essential channel which complements their full-price physical and digital channels. The Factory Outlet Village is evolving to become more about the experience and an all-day destination, with Factory Outlet Villages trying to lengthen “dwell time” and increase customer spending. The Factory Outlet Village offers the consumer the opportunity of purchasing different brands, that the customer might not have tried before, at an affordable price. This in turn can lead to purchases of full priced items when the customer is satisfied.

1.11 Looking back at the Factory Outlet Villages’ market since April 2015, it has seen new centres come on board; on 20th October 2018 the O2 arena extended into retail as it opened the first phase of a 210,000 ft² shopping centre. The Icon Outlet at the O2 offers 85 stores and 35,000 ft² of new restaurants, cafes and bars. It has been designed to offer a premium-led brand mix across fashion, lifestyle and accessories, with the aim of offering a 360-degree experience that fuses retail and entertainment for a millennial audience.

1.12 Looking forward, the UK outlet centre industry is set for further growth. Far from the saturation described a decade ago, consumer interest and innovation in the format has maintained a sales growth more akin to on-line retailing than high street shopping. Further planned development of new outlet centres are listed below:

The first phase of a new designer outlet centre has opened in the West Midlands, near the town of Cannock on the 12th April 2021, close to AVD. Work began in December 2018 on the infrastructure needed to serve the West Midlands Designer Outlet Village. Due to its success a second phase is planned, only three months after opening.

Opening in spring 2023, Scotch Corner Designer Village (near Darlington) in the North of England the Centre will provide 92 new shops including 10 restaurants and cafés. There will be 2,000 car parking spaces.

The building of a new £100 million Grantham Designer Outlet Village close to the A1, south of Grantham, Lincolnshire. It is due to open in 2023 offering 137 shops, restaurants, coffee shops and children’s play areas. The scheme will be completed over 2 phases.

Cotswolds Designer Outlet is due to open in 2023. The scheme is located close to junction 9 of the M5 and A46. It is looking to offer more than 90 shops with a gross lettable area of circa 195,000 sq. ft. over two phases. There is to be a strong F&B offer and a garden centre of approximately 81,000 sq. ft.

1.13 The impact of COVID on the Factory Outlet Village retail market

The outlet market, although impacted, is one of the few areas of retail that have fared better since the pandemic compared to some other sectors. The sector is showing positive signs with expansion at existing centres. Cannock’s successful launch in April 2021 with 850,000 customers in the first 100 days.

During the pandemic, customer attitudes have changed to a ‘Less is More’ style. The consumers are more interested in purchasing clothes for longevity, so the items are of a better quality. This shift fits well with the Factory Outlet Villages scheme of brand and value.

Overall, outlet centres have shown resilience in the retail market during the pandemic with brand and value being the core of the outlet offering. In some of the property press it is thought that the standard outlet model is likely to increase in size by 20-25% and there is an expectation of an increase in consumer spending coming in the second half of 2021.

2. Changes from the last Practice Note

2.1 There are no changes from the last Practice Note apart from section 1.

3. Ratepayer Discussions

3.1 There have been no discussions with ratepayer representatives to date.

4. Valuation Scheme

4.1 Factory Outlet Village units will be valued overall. The valuation scale to be generally adopted is V1SGPOVERAL1.

4.2 Turnover rents – consideration of approach to analysis

The objective is to derive a standard unit price which fairly reflects the maintainable levels of value evidenced by tenants in the mainstream market. This class is valued by reference to turnover rents. Turnover Rents are comprehensively dealt with in Rating Manual Section 4: Part 1: Practice Note 1 2023 – Rental Adjustment sections 27 and 28. This should be read and understood by anyone dealing with this class of property. It should be remembered that all turnover information is confidential and should not be disclosed to third parties. Data provided centrally by owner/ landlords for all units on their sites is to be treated accordingly. A bespoke ‘turnover rent’ Form of Return VO6066 is also available for individual units to issue, which will be similarly treated. Contracting out of the Landlord and Tenant Act 1954 may be normal practice.

Base rents cover a considerable range but the values achieved are consistent and secure. Turnover percentages vary widely and are dependent on the strength of the individual trader.

4.3 Total rent/ total area approach

The use of the ‘total rent/ total area’ dataset as the basis for analysis conceals a rather more complicated underlying reality, which is that there are two independent variables (turnover and base rent) which more accurately illustrate what the rental evidence suggests for the site. As for fitting out to a general standard, this is reflected in the unit rate applied.

Analysis on a total rent basis is not robust as it presents a distorted picture of the rental sample. The more highly skewed turnover rent has the effect of shifting the total rent distribution as well as introducing outliers. It would therefore be inappropriate to derive the standard unit price from analysis of the total rent/ psm which is made up of two independent variables (base and turnover).

4.4 Median analysis

Using the median has the effect of reducing the influence of skewed/ extreme values in the dataset. Adopting the middle value of the range rather than measuring the average having omitted some outliers is a truer measure of the most representative rental level.

Adoption of the median analysis effectively produces a value truly representing the range within which all retailers and hence hypothetical tenant would fall. No further adjustment is therefore necessary as the approach excludes the rents at risk.

4.5 Capital contributions

The main driver for payment, particularly the large amounts are to attract quality big name brands to enhance the centre. In essence a large part of the payment is ‘key money’.

For previous rating lists no adjustment was made to the standard unit price for capital contributions unless this was clearly evidenced as being the norm for the site.

Adjustment for valid capital contributions should be made to the individual unit rent prior to inclusion in the data sample. Where considered excessive, the units should be excluded from the analysis sample.

For turnover rents, the two income streams within the selected dataset, base and turnover, should be independently analysed.

The median analysis is the purest and preferred method to be used, cross checked with the original approach (Selected Base Rents/ Selected Floor Area and Selected Turnover Rents/ Total Site Area (excluding large units etc.)

To reduce the number of subjective assumptions made to derive the standard unit price it is recommended that a median analysis of the two separate rental incomes, base and turnover, for all standard units paying full years rent at AVD is undertaken.

A median analysis of the two income streams, base & turnover is both simple and transparent and produces values representative of the mainstream market for the units on the site. Using the median on the entire data set rather than measuring the average, having omitted some outliers gives a true measure of the most representative rental level and no further subjective adjustments to either base or turnover element are required. Comparison with other methods of analysis evidences the result is both fair and maintainable.

4.6 Rental Data

Historically rental information for this class has been fragmented between Rating Support Application and hardcopy turnover information, there has been no central data record of the turnover rents and subsequent analysis deriving the standard unit price.

Currently turnover details cannot be entered on the rental menu system in RSA.

Section 382: Practice Note 1: 2017

1. Market Appraisal

1.1 Factory outlet villages are mainly situated just outside of large cities/towns and offer well-known high end brand manufacturers the opportunity to sell their products to consumers at a significant discount. Unlike conventional stock sales, goods are not sold at the place of production. Instead, factory outlet villages are typified by a number of individual outlet stores in which different brand manufacturers sell discontinued lines, slightly imperfect goods and surplus stock. For retailers, outlet villages have offered an avenue to sell out-of-season stock, while attracting new customers to the brand.

1.2 There are two types of factory outlet centre trading in the UK. One is the conventional mall style with rows of shops facing each other down a mock street. This can be seen at Bicester where developers ‘Value Retail’ have created an upmarket discount shopping village. Likewise at Chester, the partnership between TH Real estate and McArthur Glen have developed an enormous factory shopping complex known as Cheshire Oaks. The other type of centre is a hybrid, combining conventional malls with leisure style shopping aimed at providing a family day out. Typical examples are London Designer Outlet, Wembley and Gloucester Quays.

1.3 Most Factory Outlet Villages in England and Wales have ridden the recession well and many have prospered, with both investment and letting of retail space increasing in recent years. This might be because Factory Outlet retail is considered by its many customers as a leisure experience. There is an appetite for designer goods at a bargain price – even if they are slightly sub-standard.

1.4 There are 28 Factory Outlet Villages in England and Wales (October 2015). There are three main operators, McArthur Glen, Value Retail and Realm. Significantly, 8 sites are managed by Realm. McArthur Glen is the developer and manager of six sites. These include UK and Europe’s first Cheshire Oaks Designer Outlet near Chester; Ashford Designer Outlet; Bridgend Designer Outlet Wales; East Midlands Designer Outlet, Swindon Designer Outlet and York Designer Outlet. Three of these designer outlets, Cheshire Oaks, Bridgend and Swindon, are owned by TIAA Henderson Real Estate (TH Real Estate) but managed by McArthur Glen.

1.5 Not all developers have had due regard to the fundamental factors which determine the success of such developments. This has resulted in a wide variance between the best and worst performing centres. Unlike traditional retail leases the landlord shares the risk with the tenants through the uniform application of turnover rents. This has meant that the best operators have shared in the success of those centres that have exceeded expectations whilst others have shared the problems in those centres that failed to achieve their original plan.

1.6 The UK is Europe’s most mature Factory Outlet Villages market, and its factory outlet centres are an established part of consumer life. A consolidation is occurring within the sector as well as the failure of some centres, which have not performed to the level expected by the developers. Accordingly, the industry is shifting its focus to asset managing existing properties in the UK, and looking overseas for less mature markets in which to develop.

1.7 The focus in the UK is directed at extending and upgrading existing successful schemes. Institutional investors like TH Real Estate are investing in the sector with expansion, redevelopment and improvement of their existing Factory Outlet Villages by moving towards luxury and premium brands. This was evidenced in Cheshire Oaks with the repositioning of retail stores to cater for a better food offer and adding luxury brands to the centre. In Swindon £40 million has been invested to refurbish and extend the centre. The new expanded centre opened in April 2015 and brought with it new premium brand names. Value Retail, who own Bicester Village were granted planning permission in 2014 for an extra 8,218m² extension on the adjacent supermarket site.

1.8 At the same time projects for new sites have been granted planning permission and are springing up across the country, such as Resorts World Outlet adjacent to the NEC in Birmingham. This is a multi-purpose development, featuring a casino, conference centre, four-star hotel, cinema alongside retail, food and beverage units.

1.9 Centres are very tightly managed and this coupled with the appeal for fashion has enabled strong growth compared to mainstream retail. The balance between retail and food is a fine one and the centre managers skill in getting the mix right is a major contributor to the success of the centre. This encompasses Retail merchandising units (RMU’s) within the mall itself. Unlike mainstream retailers who can locate in any town and development, outlet centre occupiers have less to choose from because most of the lease agreements contain restrictions on competition in the form of “radius clauses”. These clauses forbid tenants to open up shops in another outlet mall within a certain radius of the centre they are in.

1.10 Of course, location and catchment area is crucial and the towns and cities within it need to be large enough to support turnovers. In 2011 Bicester Village was reported to attract a spend of £1,500/ft² which was 5 times higher than the average UK shopping centre spend. Footfall in 2010 was 4.6 million and 65% of customers are overseas tourists. Bicester Village trades off the London tourist market. Bicester Village is often called the Bond Street of Factory Outlet Villages due to its luxury retail mix and global consumer base. Cheshire Oaks also benefits from a large population in nearby Manchester and Liverpool who enjoy luxury shopping.

1.11 New centres planned:

The owners of the O2 in Greenwich have a designer outlet centre to rival Bicester Village in Oxfordshire. Retailers who sign leases at Bicester are locked into geographical exclusivity deals which stop them opening another discount outlet within a certain distance, but Greenwich falls outside this boundary. They developed a mall of more than 100 discount luxury shops in unused space within the arena. American-owned AEG Europe wants to attract leading fashion houses to the development, in the hope that they will draw more visitors to the concert venue during the daytime. AEG secured planning permission from Greenwich council for approximately 230,000 sq ft of retail space on the ground floor of the O2 and on an upper level originally built for a casino.

1.12 Further reading may be accessed from the following link

http://www.telegraph.co.uk/finance/comment/10047083/The-rise-of-designer-outlets-in-the-age-of-austerity.html

2. Changes from the last Practice Note

2.1 Guidance provided by previous Practice Notes included fitting out costs of £10/m². For the 2017 List an addition of £20/m² is to be adopted costed from a basic standard of fit.

3. Ratepayer Discussions

3.1 Meetings have been held with representative agents and general discussions have taken place. Agreement has been reached on the standard unit rate adopted for Value Retail and McArthurGlen outlets.

4. Valuation Scheme

4.1 Factory Outlet Village units will be valued overall. The valuation scale to be generally adopted is VVSGPOVERAL1.

4.2 Turnover rents – consideration of approach to analysis

The objective is to derive a standard unit price which fairly reflects the maintainable levels of value evidenced by tenants in the mainstream market. This class is valued by reference to turnover rents. Turnover Rents are comprehensively dealt with in RM Section 4 Part 1 Rental Adjustments PN 1 2017 Part 27 and 28. This should be read and understood by anyone dealing with this class of property. It should be remembered that all Turnover information is confidential and should not be disclosed to third parties. Data provided centrally by owner/landlords for all units on their sites is to be treated accordingly. A bespoke ‘turnover rent’ Form of Return VO6066 is also available for individual units to issue, which will be similarly treated. Contracting out of the Landlord and Tenant Act 1954 may be normal practice

4.3 Base rents cover a considerable range but the values achieved are consistent and secure. Turnover percentages vary widely and are dependent on the strength of the individual trader.

4.4 Total rent/ total area approach

The use of the ‘total rent/ total area’ dataset as the basis for analysis conceals a rather more complicated underlying reality, which is that there are two independent variables (turnover and base rent) which more accurately illustrate what the rental evidence suggests for the site.

4.5 Analysis on a total rent basis is not robust as it presents a distorted picture of the rental sample. The more highly skewed turnover rent has the effect of shifting the total rent distribution as well as introducing outliers. It would therefore be inappropriate to derive the standard unit price from analysis of the total rent/ psm which is made up of two independent variables (base and turnover).

4.6 Median analysis

Using the median has the effect of reducing the influence of skewed/ extreme values in the dataset. Adopting the middle value of the range rather than measuring the average having omitted some outliers is a truer measure of the most representative rental level.

4.7 Adoption of the median analysis effectively produces a value truly representing the range within which all retailers and hence hypothetical tenant would fall. No further adjustment is therefore necessary as the approach excludes the rents at risk.

4.8 Capital contributions:

The main driver for payment, particularly the large amounts are to attract quality big name brands to enhance the centre. In essence a large part of the payment is ‘key money’.

4.9 For previous rating lists no adjustment was made to the standard unit price for capital contributions unless this was clearly evidenced as being the norm for the site.

4.10 Adjustment for valid capital contributions should be made to the individual unit rent prior to inclusion in the data sample. Where considered excessive, the units should be excluded from the analysis sample.

4.11 For turnover rents, the two income streams within the selected dataset, base and turnover, should be independently analysed.

4.12 The median analysis is the purest and preferred method to be used, cross checked with the original approach (Selected Base Rents/ Selected Floor Area and Selected Turnover Rents/ Total Site Area (excluding large units etc.)

4.13 To reduce the number of subjective assumptions made to derive the standard unit price it is recommended that a median analysis of the two separate rental incomes, base and turnover, for all standard units paying full years rent at AVD is undertaken.

4.14 A median analysis of the two income streams, base and turnover is both simple and transparent and produces values representative of the mainstream market for the units on the site. Using the median on the entire data set rather than measuring the average, having omitted some outliers gives a true measure of the most representative rental level and no further subjective adjustments to either base or turnover element are required. Comparison with other methods of analysis evidences the result is both fair and maintainable.

4.15 The Factory Outlet Village rental spreadsheet Factory Villages Master Template 2017 should be used to ensure consistent application of the valuation approach outlined in this guidance.

4.16 Rental Data:

Historically rental information for this class has been fragmented between RSA and hardcopy turnover information, there has been no central data record of the turnover rents and subsequent analysis deriving the standard unit price.

4.17 Currently turnover details cannot be entered on the rental menu system in RSA.