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Consolidation changes Scandinavian landscape

By Susan Thorne

Anyone acquainted with Scandinavia's shopping center industry even five years ago would notice remarkable changes if they visited today.

It's not that there are that many new centers. But there is plenty that is new about the companies running the industry. Widespread consolidation has completely reconfigured the corporate-level landscape. A few larger players have swallowed up many formerly independent shopping centers as well as the retail holdings of some institutional owners such as banks and insurance companies.

The trend is being led by new and revamped companies like Steen & Strøm ASA, Oslo, which went from a single, 200-year-old department store operation in 1991 to owning or managing more than 30 Scandinavian centers today. Steen & Strøm, whose portfolio includes properties once owned by up to 20 separate companies, is also expanding in Eastern Europe.

Another Swedish company that has grown is Piren Köpcentrumbolanget AB, which has expanded from two centers to 11 since 1996.

Atrium, the No. 1 Swedish shopping center developer, is a brand new entity created in January 1999 by the consolidation of the former Stadsgarden and Brogatan real estate companies.

Denmark, which had no strong leader until recently, now has the Copenhagen-based Danica Corp., with seven centers.

The serious real estate depression of the early 1990s helped thin out the ranks of developers, and as many as eight out of every 10 real estate companies went bankrupt in that crisis, said Lars Söderblom, president of Piren, Stockholm, one of the survivors.

"It's not a market of small players anymore," he said. "You have to be big now."

But the companies are not only bigger; they're better, too, according to observers, and their new leaders display more knowledge about shopping center development and management than yesterday's players. Piren, for example, has been focusing since its expansion on improvement of the retail side of operations.

"It is important to concentrate on the specialized business of shopping centers," Söderblom said, noting that Piren has been focusing since its expansion on improving its retail operations. "We've built up the organization with retail people, and we are able to attract greater expertise in shopping center management and marketing."

All of that has led to a better retail mix, among other things, observers say.

"[Retail] chains recognize that we know the business, and they trust us," said Söderblom. Moreover, the company's larger profile means that new chains are more likely to consider its malls, he said.

Håvard Nustad, executive vice president of Steen & Strøm, pointed out that size enables a company to enjoy economies of scale through such things as multiple-location leases.

"Scandinavia is a small market, but if you can give [a retailer] 20 or 30 locations in two to three years, you're talking about access to significant numbers of shoppers," he said.

That makes it easier to attract international retailers, too, said Nustad, who has recently signed up Banana Republic, Gap and Spain's Mango as tenants in his centers.

"Size is important to make ourselves interesting," he said. Steen & Strøm is branding its centers to forge a stronger marketing identity.

Larger consolidated companies have the capability to take on bigger projects, too, Nustad pointed out. An example is the 1 million-square-foot shopping center project called Orestaden planned by Steen & Strøm with TK Development of Copenhagen, proposed for a site near the new Denmark-Sweden bridge. Undertaking such a project, which will produce Scandinavia's largest shopping center, would have been impossible in the era of smaller companies, Nustad said.

Outsourcing takes hold
In another trend, companies are specializing in different aspects of the shopping center industry, such as development or management. This can be seen clearly in Denmark where TK Development functions as a developer, Danica is a consolidated owner of centers, and Steen & Strøm manages the Danica portfolio, according to Agneta Uhrstedt, secretary general of the Nordic Council of Shopping Centers (NCSC).

Outsourcing of management has improved the running of centers, said David C. Neil, national director (Nordic Region) for Jones Lang LaSalle, the global real estate services firm, which manages centers for the Swedish life insurance company Skandia. With other life insurance companies such as Danica and Storebrand remaining major shopping center players, outsourcing is expected to continue.

"In the old days, the lack of specialization meant that institutions ran shopping centers like office buildings," he said. "But in the last two to four years, owners have been recognizing the need for retail management, and they're finding that outsourcing works well."

Unlike the international retail blend found in the rest of Europe, the mix here is preponderantly local; Neil estimates fewer than 10% of retail tenants are based outside Scandinavia. However, there is extensive cross-border retailing within the region. Shopping centers are typically anchored by indigenous hypermarket and supermarket retailers such as ICA (Sweden) and Rimi and Rema (Norway). Sweden's System Bolajet, the government liquor monopoly, is a key mall tenant for malls in that country. Important trans-Scandinavian chains include Finland's Asko (furniture) and apparel retailers Sand, Vero Moda and Red/Green (Denmark); Hennes & Mauritz and Lindex (Sweden); and Dressman (Norway).

Although foreign penetration is not extensive, Söderblom said the growing influence of the European Community will encourage cross-border retail activity from countries to the south. Piren got in touch with North American retailers for the first time last fall, and there is some interest on their part in expansion into Scandinavia, according to Söderblom.

Retailers have observed a great improvement in the quality of shopping center management over the last three or four years, according to Kent A. Gustafsson, operations director of H&M AB, Stockholm, the internationally successful Swedish apparel retailer, which has 250 stores in Scandinavia. "Shopping centers are much more profitably run, better administered and marketed," he said, adding that with consolidation, there are fewer landlords to deal with, and the leasing process is smoother.

But Gustafsson foresees a potential problem if any single developer or manager becomes too dominant. If that happens, he said, "It could be a little risky to put all your eggs in one basket. But that doesn't seem a problem yet."

Center buildout still slow
Scandinavians are very sophisticated in many respects, but the shopping center scene remains small in scale in North American terms, Jones Lang LaSalle's Neil observed.

"The whole region is roughly the size of Texas," he pointed out. The largest players currently have less than 3 million square feet of shopping center gross leasable area (see chart, page 176), and NCSC information puts 1997 retail sales for Norway at around 261 billion Norwegian Kroner ($35.5 billion), and for Sweden around 303.5 billion Swedish Kroner ($38 billion). Shopping centers larger than 5,000 square meters (54,000 square feet) captured only 24% of total retail sales in 1997 (the most recent year for which statistics were available) in Norway and Sweden, NCSC data show.

Despite consolidation, expansion of shopping center square footage has been relatively slow in the past five years, Uhrstedt said. In 1996 there were 501 centers in all size categories in Norway, for example, and the number had grown only to 505 for the year 1998 to 1999; only 2.2 million square feet of GLA was added in that period, and none of the four new centers exceeded 50,000 square meters (540,000 square feet) GLA.

"We have more expansions and revitalizations than new centers being built today," Uhrstedt said. "For Den mark the reason is building regulations."

Denmark has size restrictions of around 30,000 square feet on new supermarkets and 10,000 square feet for other retail.

"For Sweden maybe it is the recession we endured in the early to mid-90s," she said, "paired with the fact that most suitable external areas already are taken."

So while developers throughout Scandinavia are not able to build many new centers, they are at least making the best of what they've got.