Retail Nordic

Financial highlights

3.9%

Average prime retail yield requirement across the Nordics

5.9€bn

Investment volumes in the Nordics were up by 26 percent in 2022, compared to 2021. While the sector continues to be out of favour among many investors, sentiment has been very mixed, with high interest in grocery-anchored retail, while interest in shopping centres remains under pressure. Yield requirements are also under pressure within the retail segment. Visibility on rents and expected economic recovery in 2024 will create the basis for high cash-on-cash returns for external warehouses and shopping centres, in combination with value growth potential when yields stabilise and consumer confidence recovers again.

Investment volume retail properties in the Nordics in the past 12 months

Sweden Retail

Polarisation in the Swedish retail market continued in the second half of 2022 and will most likely continue going forward as well. Retail warehouses containing groceries and out-of-town locations remain strong, while shopping centres continue to see challenges.

Investment market

The investment market for retail continued to be volatile in 2022. This trend is expected to continue. We see big differences within the market, with retail containing groceries continuing to show high demand and less increased yields, while external shopping malls continue to face challenges, with vacancies and lower rent levels compared to prepandemic levels.

Tenant market

A weaker outlook and downwardly revised growth figures for e-commerce gave retailers a little breathing space as they continued to have a hard time in 2022. Reduced consumer confidence, together with a weaker economic outlook, will put even more pressure on the sector for the first half of 2023. However, we are more positive for stabilisation and turn towards the end of 2023.

Funding status

Banks and capital markets remain restrictive regarding both capital availability and pricing for the retail segment. Earnings visibility remains crucial for higher LTV, which probably will put pressure on retail in 2023 as consumer confidence is at a record low level.

Sustainability

We expect to see more initiatives to reduce CO2 footprints by landlords and tenants as they work hard to optimise the flow of goods and adaptions to integrate circular economic initiatives to their operations.

Outlook for 2023

The uncertainty for retail continues in 2023, driven by continued supply problems, a weaker economic outlook, rising inflation and higher funding costs. Already pressured tenants might have difficulties with current CPI development, which makes it crucial for real estate companies with retail assets to find a balance between rental growth and discount.

Financial highlights

1.4€bn

Transaction volume for retail assets in 2022

Finland Retail

+45bp y/y

Shopping centre yields up in 2022

Last year’s retail transaction volume more than doubled from 2021. On the occupier side in the second half of 2022, many retailers reported revenue growth while simultaneously seeing the start of a slide in profits.

Investment market

The retail segment transaction volume in the second half of 2022 was €330 million, but over half of the volume came from one shopping centre deal in July. The bulk of the transactions were grocery-anchored retail and small secondary assets. Overall, retail is currently a predominantly domestic investment market.

Tenant market

2022 was a good year in terms of sales, as consumers increasingly spent their savings. At the same time, the 2023 occupier outlook is highly dependent on consumer salary development as savings have now been eaten into and purchase power is under pressure. We are back in a polarised market in which some retailers will continue to experience strong growth, while others will continue to shrink their store networks.

Funding status

Daniel Anderbring Head of Capital Markets Sweden

Availability of funding is at a relatively good level for assets with reliable tenants, but for secondary properties and properties in need of larger development, funding is limited and margins have moved out.

Sustainability

From a tenant perspective, physical retail spaces equal only a few percent of their total carbon emissions and, therefore, their willingness to pay a green premium in rents is questionable. Other motivators, centering around social and governance factors, are needed to help align the sustainability efforts of owners and tenants.

Outlook for 2023

Low liquidity will continue in the retail sector, due to a lack of active buyers targeting the sector. As in recent years, income will be the key to profits and value growth will not be witnessed.

Financial highlights

5.50%

Shopping centre prime yield failed to reach historical low levels in this cycle

0%

Prime rent stayed unchanged year-on-year, while existing lease stock indexed by 8-9%, along with inflation

Mikko Kuusela Senior Director, Valuation & Strategic Consulting

Norway Retail

The Norwegian consumer has started to return to the long-term trend of spending more on services and less on goods. However, the economic situation, with increasing interest rates and rising prices, is likely to slow the consumption of goods and services. Retail leasing activity picked up in 2022 and we experienced solid activity in the retail investment market.

Investment market

There was solid activity in the retail investment market in 2022, with retail transactions accounting for approximately 17 percent of the total Norwegian transaction market. Prime yields on retail assets, high-street, shopping centres and big-box, were adjusted up during the second half of 2022, due to the sharp rise in interest rates.

Tenant market

Retail leasing activity picked up in 2022, especially in the Oslo highstreet market. Recently signed contracts and ongoing work to secure and finalise new leases (known as processes) supported an increase in prime high-street rents, and we adjusted our rent level for high-quality retail space to NOK 25,000 per square metre (up from NOK 20,000 per

Financial highlights

17%

Retail accounted for 17% of the total transaction volume in 2022

Denmark Retail

square metre) in the fourth quarter of 2022. Luxury and Electric Vehicles (EV) continue to be the most active players in the Norwegian market. However, some processes are being halted or delayed, due to financial uncertainty. In particular, this relates to second tier assets and locations.

Funding status

The appetite for retail assets was good in 2022, particularly for assets with defensive income streams including groceries. Shopping centres accounted for almost 70 percent of the total retail transaction volume.

Sustainability

Consumers continue to demand sustainable options and retailers need to increase their ESG focus to gain competitive advantage.

Outlook for 2023

In the short term, high inflation and the rapid rise in interest rates is expected to weaken overall consumption, including online shopping. Online shopping is also expected to return to its former pace.

25,000 NOK/ sq. m.

Stable high-street prime rent. Up from NOK 20,000 / sq. m.

Uncertainties are looming, due to high inflation and historically low consumer confidence.

Investment market

Despite being affected by rising interest rates in the second half of 2022, retail transaction volume was exceptionally high at approximately one fifth of the total transaction volume. This was driven by several large transactions, most notably the sale of four Magasin department stores and several grocery store portfolios.

Tenant market

Due to rising costs and a decrease in consumer confidence, tenants are being more cautious in their decision making. Rental rates have been trending downward, particularly in the fashion retail sector, and there is a growing preference for shorter leases across industries. The bigger tenants also have more leverage in negotiations and can dictate terms, to some extent.

Funding status

The current interest rate hikes are impacting financing conditions, and obtaining funding for retail properties in less desirable locations, apart from grocery stores and warehouse parks, can be difficult. Funding is more readily available for assets with dependable tenants, but properties that require significant development may have difficulty finding funding.

Sustainability

Adapting to a more sustainable future is becoming increasingly important, with a focus on ESG policies. This mainly affects new developments, rather than existing stock. Sustainability is a key factor for investors and owners, and tenants are now increasingly demanding active ESG strategies. Consumers continue to prioritise sustainability, and retailers need to focus on ESG to stay competitive.

Outlook for 2023

Investment activity is highly sensitive to changes in interest rates. Despite this, overall sentiment is positive, with grocery stores in particularly high demand. Prime assets and warehouse parks also continue to see strong demand.

Financial highlights

3.50%

Prime yield for high-street Copenhagen locations

2.82%

Vacancy rate for retail in Copenhagen January 1, 2023