The Nordic Retail Market

Anna K Johansson

14 April 2011

2

Introduction

Life before and after 2008 Key Economic Indicators Consumer Attitudes Retail Sales Retail Rental Performance

High Streets Shopping Centres

Trends – the fight for the Consumer Polarisation

Retailers Locations

Opportunities Rents & Deals Voids Attracting New Retailers Challenges for the Future

3

Life before and after 2008

Not a uniform picture across the Nordics Norway was not hit as hard as other Nordic countries by the

recession The domestic consumption and the production of goods and services

were fairly stable The increase of the unemployment rate was the smallest of all Nordic

countries

Denmark fairly stable performance during the recession but GDP decreased with some 5% in 2009 Housing market more hit than in other Nordic countries

Sweden and Finland Rapid fall in GDP and fall in production of goods Unemployment increase

All Nordic countries have performed well in comparison with many other countries in Europe

4

Key Economic Indicators: GDP Growth

As a result of a strong policy response by the Danish government, GDP was expected to grow at about 1.9% in 2010 and increase to 2.1% in 2011. GDP set for relatively slow but steady growth

Recovery set to continue in Finland, although at a steady pace

Norwegian (mainland) growth recovery is accelerating. Some of the best growth prospects in Europe for 2011

Slowing but still strong growth in Sweden

-10

-8

-6

-4

-2

0

2

4

6

2008 2009 2010F 2011F 2012F

EU DK N FI SE

5

Key Economic Indicators: Unemployment (%) Unemployment rate in the

Nordics below the EU average except in 2009 to varying degrees

Compared to EU unemployment lowest in Denmark and Norway. Generally decreasing mostly. Increasing slightly in Denmark

Unemployment could still rise further. In Denmark many companies avoid hiring due to moderate economic expansion and uncertainty from the Eurozone debt crisis

Unemployment is likely to stabilise in Finland

Strong labour market recovery being seen in Norway

Unemployment now starting to fall in Sweden

0

2

4

6

8

10

12

2008 2009 2010F 2011F 2012F

EU DK N FI SE

6

Key Economic Indicators: Inflation (%)

Inflation more recently above the EU average

Recent rises in Denmark primarily driven by increase in prices of tobacco, petrol and other consumer products. Inflation expected to stabilise in 2011

Modest increases in Finland over the next few years

Likely to remain stable in Norway

Small increases possible in Sweden but will be kept in check by the Swedish central bank

-2

-1

0

1

2

3

4

5

2008 2009 2010F 2011F 2012F

EU DK N FI SE

7

Key Economic Indicators: Consumer Spending Consumer spending in

Denmark increased by 2% in November; however, confidence has drastically declined among Danish consumers as they appraise the current economic climate

Consumer spending in Finland continues to grow

Norwegian GDP growth is expected to be helped by rising household spending and increased investments in oil

A large driver behind the growth in Swedish GDP is high domestic demand, this trend has been reflected in retail sales volume growth

-6

-4

-2

0

2

4

6

8

2008 2009 2010F 2011F 2012F

EU DK N FI SE

8

Changing Consumer Attitudes

Pre-Recession Consumer

I deserve it

I must have it

I will buy it

Post-Recession Consumer

I really shouldn’t

Do I really need this?

I will think about it

Source: Verdict Research

9

Retail Trade Turnover - % Change on Previous Quarter

Source: European Commission

-4

-3

-2

-1

0

1

2

3

4

5

2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4

European Union (27 countries) Denmark Finland Sweden Norway

10

High Street Shops – Rental Growth by Country

80

85

90

95

100

105

110

115

120

125

130

Inde

x 10

0=20

05

Denmark Finland Norway Sweden Europe Western Europe

Source: Cushman & Wakefield European Research Group

11

Shopping Centres – Rental Growth by Country

80

90

100

110

120

130

140

Inde

x 10

0=20

05

Denmark Finland Norway Sweden Europe Western Europe

Source: Cushman & Wakefield European Research Group

12

Trends – The Fight for the Customer

Greater polarisation between retailers Winners

Retailers still expanding, although cautiously and selectively

Greater polarisation between locations and types of locations

13

Retailer Status

Retailers: Many retailers saturated in their home market No significant “no wave” of multiple site retailers Not all dead – many willing to expand although cautiously

Active Retailers: Value Mainstream Fashionable New entrants New format

14

Polarisation of Locations

Location – the dominant are getting stronger Downtown shopping streets e.g. Copenhagen city centre Affluent suburbs and towns Regional cities with dominant shopping centres

Smaller towns and first generation shopping centres Suffering Limited demand Lack of attention and investment

Opportunities nevertheless

15

Opportunities

Supply vs demand – little pipeline Satisfying demands of retailers’ expansion plans

More concentration on proactive asset management of existing space

Refresh tired schemes to keep them fresh and of interest to tenants and consumers

Differentiation between prime and secondary Prime cities driven by demand Town centres and shopping centres:

Realisation of drop in values - its happening! Rejuvenation - landlords/investors are the catalyst Lack of true asset management expertise

16

Shopping Centre Supply

Denmark

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sq.m

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sq.m

0

50,000

100,000

150,000

200,000

250,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sq.m

Finland

Norway

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Sq.m

Sweden

17

Rents and Deals

Number of deals decreased…. Still growth Predictions:

2011 – rents are likely to remain stable with a slight upward pressure across the Nordics

Locations likely to recover quickest Prime location streets Up to date shopping centres

Deal structure changing Turnover based rents increasing, sometimes including minimum rent Lease incentives from the landlords

18

Voids – What can be done?

Assist retailers: Landlords need to re-connect with building retail

entrepreneurs and new entrants Supporting independents and small chains

Positive asset management Lease incentives by the landlords Think laterally about new initiatives to lease the

vacant space using examples from elsewhere in Europe

19

Attracting New Retailers to the Nordics

New retailers can also be home-grown Number of retailers considering entrance to the Nordics. Many attractions to international retailers:

High income and spending power Brand conscious and oriented consumers Market focused in a small number of cities

BUT they are also relatively small markets individually Even taken together the total market size is only 25 million and the10th

largest in Europe though in terms of area the Nordic market covers 1.155sq.km (making it the

2nd largest area (sq.km) in Europe excluding Greenland) ahead of Turkey

20

Nordics - An Opinion on the Year Ahead

A healthier outlook for the global economy will boost the prospects for Nordic exports in the coming months, although the unemployment situation in the region is not expected to improve until 2011

The Nordic countries are relatively better placed in terms of public finances, whereby governments can undertake fiscal stimulus without significant new debt, allowing a more gradual fiscal tightening once the economic recovery kicks in. Finland aside, the weaker level of local currencies will be beneficial to the recovery

Low interest rates are supporting business and consumer confidence/activity

The region’s banks are also heavily exposed to the Baltics, which heightens risk perception

The retail sector is being supported by tight supply, largely as a result of restrictive planning

The Nordic region is small but is also wealthy and stable Once the current financial/economic crisis is over, investors’ perception of

risk will have changed and the region stands to benefit from the fact that these countries are some of the cleanest in environmental terms, least corrupt and socially stable in the world

21

Challenges for the Future

Likely trends in the future? Consumer uncertainty Increased polarisation - retailers

Stealing market share Slower volumes Good value

Continued flight to quality and dominance

Increasing tenant demand Support for new retail companies? Lack of new pipeline for 3-5 years