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News Release

Stockholm

Foreign investment continues to drive Swedish retail market

Jones Lang LaSalle study finds 94% of retail transactions involved foreign investment.


Swedish retail property transactions reached 8.537 bn Swedish Krona (SEK) in the first half of 2011, compared to SEK 3.22 billion in H1 2010 – an increase of 165 percent, according to Jones Lang LaSalle’s latest Swedish Retail Market Survey.

Of these transactions, 94 percent involved an international vendor or purchaser, compared to 70% in 2010 and 30% in 2009. Shopping centres accounted for 79 percent of transactions and retail warehouse for 15%.

Håkan Pehrsson, head of Asset Management and Retail at Jones Lang LaSalle, commented:

“Investor demand has been driven by Sweden’s strong GDP and growth in consumption, the increased availability of debt finance and high quality property stock. However, demand is weaker for secondary and tertiary retail property investments. After a sharp rise in yields during 2008 and 2009 prime retail yields have fallen from 6.5 percent in mid-2009 to 5.5 percent in 2011. Our current forecast is that prime retail yields will remain relatively stable over the next few years, not only due to occasional economic volatility likely to restrict downward yield movement, but also pressure to increase interest rates when there is economic growth. In order to preserve or increase the value of investments the ability to increase rents will therefore be crucial, and this will only be achieved by active asset management, including refurbishment and well-designed extensions.”

Sweden has emerged strongly from the global economic downturn with GDP growth in 2010 at 5.7 percent, compared to the EU average of 1.8 percent buoyed by low interest rates and strong public finances. Whilst consumers continue to be cautious in light of wider macroeconomic issues, disposable income is forecast to continue to rise in real terms by 2.1 percent in 2011, and total retail sales are forecast to grow by 1.5 percent by the end of the year. The retail market continues to be dominated by a small number of large chains, but a number of new international retailers have opened in prime locations in Sweden’s largest cities throughout 2010 and 2011.

Håkan Pehrsson, continued:

“Sweden has traditionally been dominated by domestic brands, however in recent years dynamic new names have entered the market. Spanish retailer Desigual has opened several stores and Hollister will open its second store in Stockholm by the end of the year, having only arrived in Sweden in summer 2011. There is also increasing interest from a number of new international luxury retail brands.”

In terms of supply, shopping centres continue to dominate the market. 2008 through to 2010 saw over 100,000 sq m of new space constructed per year, although this is thought to have slowed in 2011, which has been characterised by extensions to existing centres rather than new openings. The shopping centre pipeline for the period 2011 to 2014 in Sweden’s three major cities is relatively low with a forecasted increase of 4 percent in Stockholm and 11 percent for Gotthenburg.

Fredrik Tellefsen, head of Retail Development and Leasing, at Jones Lang LaSalle, concluded:

“Sweden was one of the pioneering countries for shopping centres in Europe, and the amount of shopping centre floorspace per capita is above the European average due to less developed high street and retail warehouse provision. However, in order to retain and develop its value, retail property stock needs to evolve to reflect current lifestyles, socio-economic conditions and increasing competition from online sales.”

Since 2009, retail transaction volumes have grown strongly, with prime retail property generating the greatest demand. Prime rents have risen in central Stockholm to around €2,000 sq m. Whilst modest compared to the €8,000 sq m. demanded on London’s prime shopping streets, the increase has been well above the rate of inflation. This contrasts with secondary retail rents which in some cases have failed to keep pace with inflation. However, the rate of growth in supply has outpaced the growth in retail sales, leading to average turnover per square metre decreasing.