Tobias Alsborger, Partner and Co-Head of NREP’s Stockholm office. Image: NREP
Opinion

STEADY AS SHE GOES

While the threat from e-commerce is a dominant theme for retail real estate in the Nordics, the well-located retail centers in Nordic capital city regions driven by local supply offer a more positive outlook.

By Tobias Alsborger

Medium-sized grocery-anchored shopping centers well-located near public transportation stations in the suburbs of Nordic capitals are highly desirable investments, mainly due to the nondiscretionary and non-cyclical nature of daily consumption, their monopoly on catchment areas favored by a strong urbanization trend, and a limited threat by new supply from competitive centers.

In an age when regional shopping malls and high-street stores are under fierce threat from e-commerce, “e-commerce resilience” is an additional characteristic that can be added to the list of attractions for these centers. Due to the nature of the value proposition that these local centers offer and the nature of the distribution model in the Nordics, these centers are proving resilient and may even benefit from increased e-commerce.

Currently measuring about 7% of total retail turnover, e-commerce is expected to more than double over the next 10 years. While the impact on occasional purchases and destination-driven shopping is negative, however, there has been almost no negative impact on well-located, local necessity-driven centers in Nordic capitals. Online sales of electronics exceed 20%, fashion 12%, and durables 10%. Meanwhile, only 1% of food sales are online and this is not expected to rise by more than a couple percent for the next 10 years.

Due to a number of factors, the threat to well-located, necessity-driven centers in the capital city regions is even smaller. Suburbs around the Nordic capitals have largely sprawled around public transportation infrastructure, such as commuter rail line stations, and public transportation is a predominant mode of transportation.

These suburban centers are cross points between different modes of transportation and are, by their very nature, easy to get to for the communities they service as people pass through them on their daily commutes. Whether it is stopping to pick up some milk and groceries or a quick stop at the pharmacy, the convenience is time-saving and painless.

Secondly, these centers provide not only food, but service all the basic daily needs of their catchment areas, providing everything from hair dressers to health care and fitness centers, in addition to serving as the social meeting place, with local cafés and restaurants.

Thirdly, the e-commerce threat is to some extent mitigated by the dominance of the click-and-collect distribution model in the Nordics. As dual income is the norm in the Nordic region, meaning home delivery during the daytime is rarely a preferred choice and even home deliveries in the evening are remarkably rare in all countries. This is in part driven by the fact that “last mile” distribution for many goods is prohibitively costly in the Nordics. This is expected to continue to be the case, as evidenced by the distribution strategies of the main grocery chains in the Nordics.

Increased pick-up handling will require more space, not only for handling the growth of online food retail, but also for other segments. The suburban shopping centers serve as the local pick-up points for all types of online retail and, as such, the increased growth of e-commerce of non-necessity goods, such as electronics, fashion, sporting goods etc., is driving footfall to the necessity-driven centers.

Well-located, grocery-anchored shopping centers along the public transportation infrastructure around the Nordic capitals have proven reliable service providers to their local communities across cycles and are now proving resilient against the new threat from e-commerce. Even in an age of online alternatives, customers will continue to value the convenience of their trusted local community shopping center. Maybe investors should do the same.

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