The pandemic has hit Oslo’s shops and restaurants hard. At the same time, many car-based shopping centres and big-box stores have seen a sharp rise in turnover. Reopening society will be a lifebuoy for some, while the party is over for others.
Although a lot of businesses in central Oslo have adapted quickly by offering click and collect, home delivery or takeaway, many have unquestionable lost a good deal of their turnover. Even with compensation schemes and other support measures, they are struggling to keep their heads above water. The reopening of society is therefore welcome.
Consumption of services fell substantially during the pandemic, and Norwegians spent more on goods than services for the first time since 2013. As infection control measures are reduced, consumption is expected to shift back towards services. In addition, ending travel restrictions and opening frontiers will once again permit cross-border shopping and other purchasing abroad. Both these factors will reduce domestic retail earnings, particularly where growth has been strongest over the past 12 months.
Investors have become more selective about which retail properties they want in their portfolios. The wide differences found in the segment were reinforced during the pandemic. While big-box stores with building materials and food shops have sold like hotcakes, we have seen fewer sales of retail property in the city centre. Only two such transactions involving high-street retail properties have been registered since 1 January 2020.
Prime yield for high-street retail properties in Oslo has remained stable at 3.90 per cent over the past year. Considering the sharp decline for yield in other sectors, and the fact that yield has historically been on a par with the best office properties, this represents weak progress and illustrates the challenges which have been faced by retailers.
Big variations between sectors
Sectors have varied greatly over how they have managed so far during the pandemic. Money earmarked for foreign travel has been spent instead on such purposes as home improvements, while restaurant visits have been replaced by home cooking. That has increased turnover substantially for homeware and food shops.
Other sectors, such as shop sales of clothes and shoes, have seen a negative trend in turnover every year since 2016. However, sales of goods traded online have risen substantially.1 This may be further reinforced in the time to come, since a number of retailers have been compelled to start selling online over the year.
Retailing after the pandemic
Looking ahead, we believe it will be even more important for shops to have a showroom in a good location where customers also have the opportunity to shop with the aid of click and collect. However, willingness to pay for retail outlets on higher floors will fall further and we expect to see more conversion of retail space to offices in the city centre.
Rents for the very best street-level locations will probably remain unchanged because competition for the finest “display windows” is tough. After the summer, for example, Chinese car brand NIO will open the doors of a 1 700 m² showroom at Karl Johans gate 33. Rival car brand Polestar opened its first showroom at Øvre Slottsgate 7 almost two years ago. Bertel O. Steen has done the same in Bjørvika. A handful of other brands have expressed interest in securing attractive premises in areas with a high footfall.
Online grocery stores are one of the growth winners in recent years. Over the past 12 months, their collective turnover has increased by 64 per cent. Although the sector has grown strongly, however, it still accounts for less than two per cent of total grocery turnover.2
Comparing Norway with other countries, we can see clear growth potentials in several sectors – and perhaps first and foremost groceries. Norway has lain at the bottom of the European table for the proportion of the population buying food online during recent years. Online pharmacies, for example, are also very popular in Sweden, and Apotea.se and Apoteket.se were both among the top five Swedish online retailers with the highest turnover in 2019.
The growth potential for online shopping in Norway remains substantial. Each Norwegian spent an average of EUR 635 online in 2020, compared with EUR 1 012 per Swede.3 With online shopping still offering a considerable growth potential and consumption set to shift back towards services when society reopens, conditions will remain challenging for many retailers.
1 Source: Statistics Norway (clothes, textiles, furnishing, luggage and leather goods).
2 Statistics Norway (turnover growth for a broad product range from 2019 to 2020).
3 Source: PostNord