Retail properties under pressure
Nordic Credit Rating (NCR) believes that retail property owners in the Nordic region will face challenges in the next few years due to rapid changes in the retail sector and in consumer behaviour. While the wider Nordic property sector has been surging in recent years, large mainland European and UK shopping mall owners have seen sharp drops in their share prices due to challenges facing the wider European retail sector.
"We think that retail property owners will come under pressure to invest more heavily and question what properties can be considered "prime" in their portfolios as a result of e-commerce growth and increasing demand for services and retail "experiences," in addition to the risk of increasing vacancies", said Michael Andersson, Chief Rating Officer at Nordic Credit Rating.
Looking at the latest reports (H1 2019) of 15 property companies that we surveyed, there has been little effect on operational and credit metrics so far, despite the overall negative sentiment in the sector. Property valuations are the only financial metric where we can see a clear negative difference for property owners with a retail focus. Credit metrics remain healthy across our sample as well as the broader Nordic real estate sector. Although a combination of lower earnings and valuations, in tandem with increased interest rates could easily change the picture, our view is that the sector should have enough financial stamina and headroom to adapt to a tougher retail environment in the years ahead. However, we find it difficult to see a continuation of the rapid increases in rental income, cash flow and valuations seen over the very prosperous past decade.
If you have any questions, please contact:
Michael Andersson, Chief Rating Officer, + 46 73 232 43 22, michael.andersson@nordiccreditrating.com
Mille O. Fjeldstad, Credit Analyst, +47 99 03 89 16, mille.fjeldstad@nordiccreditrating.com
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