Chapter 7
Retail
Denmark Real Estate Market Outlook 2023
Key Takeaways
- Lagging consumer confidence will weigh on retailers. They will attempt to counter this by enhancing the consumer experience.
- The surge in e-commerce penetration that the market has seen in the last few years will provide consumers with more choices than ever on how to shop.
- Stores will be used to increase efficiencies and enhance the omnichannel experience for the customer. Investors should consider how store and shopping centre design can support these non-traditional uses.
- Given the attractiveness of some of the retail segments, a potentially softer yield expansion can be expected versus what may be anticipated in other commercial property sectors.
- ESG considerations are rising, with shoppers taking action to consume less, buy locally or use smaller or independent brands.
Retail is not immune to the wider economic headwinds
Consumer confidence is at a historic low - below the levels reported during the global financial crisis and the height of the COVID-19 pandemic. In 02 2022, the Danish retail sales volume index started dipping though from historically high levels. Given the current economic backdrop, retail sales can continue to decrease in 2023.The role of the store will continue to evolve
Looking ahead to 2023, we expect on line penetration to remain stable. Clearly demonstrating that physical retail remains a valued amenity, CBRE's Global Live-Work-Shop Survey found that Danish consumers prefer in-store shopping for five out of ten product categories.
The survey also showed that many consumers still like to see a product in-store before ordering online and prefer to return on line orders in-store instead of by mail. Postal returns are costly for retailers, and many have now started or are considering charging for this service. Utilising store networks can therefore increase supply chain efficiency for occupiers.
To support these non-traditional uses of the store, where reconfiguration is required, landlords will increasingly become mindful of using zoning and how this can be best facilitated in terms of design. Stores will be used to increase efficiencies and enhance the omnichannel experience for the customer. Investors should consider how store and shopping centre design can support these non-traditional uses.
Prime high-street still challenged
Retail vacancy in Copenhagen's central business district (CBD) saw an upward pressure in the first half of 2022 and then started declining in 03, with the current vacancy rate standing at 6.3% (as of 03 2022; Source: Danish Property Federation).
Copenhagen's high-street area is though far from approaching full occupancy, with vacancy levels remaining elevated in the short term.
Copenhagen's high-street area is though far from approaching full occupancy, with vacancy levels remaining elevated in the short term.
Investors will continue to favour retail parks and convenience-led assets in the short term
Retail investment surprised on the upside in 2022, recording the second-best yearly result over the last decade. Grocery-anchored retail assets have proven to be particularly resilient, and this trend is expected to persist throughout 2023.
On the other hand, investment activity in the high-street area has been subdued, reflecting challenging occupier fundamentals.
Prime yields moved out during 2022 by 35 bps to 90 bps, standing at (as of 04 2022) 4.10% for high street retail (from 3.20% in January 2022); 5.75% for shopping centres prime (from 5.10%); 5.25% for supermarkets prime (from 4.75%) and 6.0% for retail warehouse prime (from 5.65%). Given the attractiveness of some of the segments, a potentially softer further yield expansion can be expected versus what may be anticipated in other commercial property sectors.
On the other hand, investment activity in the high-street area has been subdued, reflecting challenging occupier fundamentals.
Prime yields moved out during 2022 by 35 bps to 90 bps, standing at (as of 04 2022) 4.10% for high street retail (from 3.20% in January 2022); 5.75% for shopping centres prime (from 5.10%); 5.25% for supermarkets prime (from 4.75%) and 6.0% for retail warehouse prime (from 5.65%). Given the attractiveness of some of the segments, a potentially softer further yield expansion can be expected versus what may be anticipated in other commercial property sectors.
TRENDS TO WATCH
Rise of grocery stores
The role of grocery stores will continue to evolve. Although food & beverage digital sales are growing, most of these orders are fulfilled at the store level through curbside pickup or third-party delivery. Grocers will transform their footprints to better suit multi-channel retailing.
ESG consciousness is rising among consumers
As evidence grows of the sustainability challenges facing the planet, environmental and societal issues are increasingly moving up the agenda for both consumers and businesses. This can lead consumers to focus on purchasing less, shopping locally sourced/produced products and smaller/independent brands.