Demand for big-box outlets has experienced an upswing during the pandemic. Moreover, turnover of these assets and retail parks has increased over time and represents an ever-growing part of the transaction market for retail property. As the graph below shows, big-box accounts for just over 50 per cent of the total transaction volume for retail properties so far this year.¹ Market shares are following a clear trend.

The most important reason is turnover developments among tenants. First, space-consuming retail and groceries have experienced relatively little leakage to online shopping. Second, most people have spent more time at home and many have brought forward investment in their residence. That has increased demand for garden equipment, building materials, furniture and the like. Third, the grocery sector has benefited greatly from home working, reduced restaurant visits and periodic closures of the land frontier.

Investor interest has been aroused by this segment’s resilience to the pandemic and online shopping, which is reflected in both transaction volumes and required returns. The best out-of-town big-box properties achieve a yield of about 4.90 per cent, and grocery boxes are in many cases priced even more sharply. Yield has thereby fallen by 35 basis points over the past 12 months and by no less than 60 bps from the pre-pandemic level.

We believe that demand for this type of property will persist, particularly for outlets located in strong clusters.

Interest up for shopping centres, but challenges persist
The turnover trend for Norway’s shopping centres remains split. A number of the facilities which experienced a big decline in sales during 2020 have seen a further decline so far this year. The worst performers during the pandemic have been centres in the big cities, particularly in the capital.

This development reflects several factors. The enforced shutdown before the summer naturally had the biggest impact. In addition comes the loss of important customer groups – typical tourists and office employees who have worked from home.

At the other end of the scale, centres close to the Swedish border, small local centres with a substantial grocery element, and car-based facilities with many homeware shops have enjoyed good times.
Despite the uncertainties attached to shopping centres, the transaction market has held up well. The volume so far this year is about NOK 8 billion, and promises to reach the highest annual level since 2015.²

However, newly established Aurora Eiendom has been an important contributor here. This company owns a total of five shopping centres acquired in July, with a combined value of about NOK 4.8 billion.

Despite the growing interest in these assets, the sector still faces challenges. If we look to continental Europe, the average yield for retail parks there is lower than for shopping centres for the first time.³ And this development primarily reflects higher shopping-centre yields.

Rents are under downward pressure, including in Norway. In addition, the tenant mix is gradually shifting towards health and services – which calls for conversions and investment.

Showcases holding up best
Oslo’s shopping streets are changing. In-store turnover is under pressure from several quarters. Nevertheless, rents in the city’s best shopping streets are holding up well – largely thanks to alternative uses and large marketing budgets.

Car manufacturers are hunting for showrooms in the heart of downtown Oslo. Chinese marques Nio and Polestar have already secured locations at Karl Johans gate 33 and Øvre Slottsgate 7 respectively. Xpeng is also hunting for similar premises.

Other examples are Porsche, which has a combination of showroom and cafe at Aker Brygge, and Bertel O Steen’s Peugeot display in Bjørvika. The willingness to pay for visibility is high.

However, this type of demand is confined to the really good locations. In more “secondary” spots, where the tenant composition is traditional, everything is about turnover figures for the shops. It has often proved more challenging to maintain rents in these cases.

Investor interest in high-street stores is being maintained, and retail properties have changed hands in central Oslo for about NOK 2 billion so far this year. Location is clearly also crucial for investors.

Prime assets in the heart of central Oslo currently achieve a yield of about 3.75 per cent. This has thereby crept down by 15 bps over the past 12 months and is back to the 2019 level. But the gap down to prime yield for office properties has more than tripled since then, and is now 50 bps.