After 75 days as the new CEO of Citycon, I’d like to share with you my first reflections on the Nordics as a business environment.
There is currently a lot of discussion around the presumed death of the shopping center. I know that many of these discussions stem from the U.S. where parts of the industry are indeed facing headwinds. But I personally come from the U.S., the country that pioneered shopping centers and has the most shopping centers per capita, and I see clear differences between Nordic and U.S. shopping centers – and reasons to favor the Nordics. There are several distinguishing factors which separate the Nordics from the U.S. as a business environment in the retail real estate industry.
What struck me first when I started my new job here in the Nordics is the significant difference in the number of shopping centers per capita. According to the real estate service company Cushman & Wakefield, the U.S. has around 2,300 sq.m. of gross leasable area per 1,000 people, compared to 520 sq.m. in Europe. The over-capacity of retail space in the U.S. has transformed many centers into commodities with poor quality and low footfall, a phenomenon which I haven’t seen to the same extent in the Nordics.
Both U.S. and Nordic shopping centers lean on ‘right location’, but the means of transportation is different
I have been in the shopping center business for more than 30 years. Early in my career, I learned that the greatest challenge in the shopping center industry is driving footfall. From this perspective, the starting point in the Nordics is different. American cities are car-based, which also affects the location of the shopping centers. Most shopping centers are located out-of-town and cars are the only option to reach them.
In the Nordics, the cities are pedestrian-friendly and the public transport systems are much more developed. I have really been impressed by the high usage rates of public transportation and the important role public transportation plays here. Many Nordic shopping centers are integrated as part of the city center and with public transportation, which provides shopping centers with a natural footfall of visitors.
Nordic shopping centers are anchored by grocery stores
Traditionally, the American shopping center operators have been dependent on department stores to drive footfall. In recent years, many department store operators have been struggling in the U.S. and many shopping center operators have lost their important anchor tenant. As a result, many landlords have been forced to innovate new ways to drive footfall, e.g. by offering more entertainment as well as food and beverage.
In the Nordics, however, many shopping centers are anchored by grocery stores, which are more resilient towards e-commerce. At this point, the share of online grocery shopping in the Nordics is very low compared to the U.S. But even though its share of the total will likely increase, we expect physical stores to remain dominant for the grocery retailers due to the relatively low density of the population in the Nordics. Buying food online will be more expensive compared to a physical visit to the store due to the cost of logistics at the retailers’ end and customers’ relative unwillingness to pay for the delivery.
In the U.S., the tenant mix focuses more on entertainment, cafés and restaurants
Both in the U.S. and in the Nordics, retail is going through a structural change due to profound changes in consumer habits and lifestyles. Therefore, shopping centers need to reposition themselves and provide other reasons for visiting, such as entertainment experiences and innovative food and beverage concepts. Another trend is to curate different kinds of services and culture features such as municipal and medical services, cinemas and libraries.
In the U.S., particularly the entertainment and food and beverage tenants have significantly increased their importance in recent years. I find that many of the Nordic shopping centers have already come a long way in offering more than just retail, but in comparison with the U.S. there is a lot more to be done in terms of entertainment, cafés and restaurants.
An interesting trend recently in the U.S. has been the conversion of retail space into other usages, such as co-working areas or offices. For example, when I was at Starwood, we took an abandoned department store in Dearborn, Michigan and converted it to offices for Ford Motor Co. as part of their global headquarters. This trend is expected to grow especially in the U.S. where there is more retail real estate overcapacity.
Retail is going through a change and the winners will be those who can adapt to these changes. Over the coming years, American and Nordic shopping centers in the right locations, with a proactive asset management that creates attractive venues for the visitors, are ensured long-term success.
F. Scott Ball