THE COPENHAGEN RETAIL MARKET Market update January 2009 1 CONTENTS 1. Introduction to the Copenhagen retail market 2 2. The retail property occupational market 6 2.1 The high-street retail market in the Copenhagen city centre 6 2.2 The Copenhagen Latin Quarter/Grønnegade area 8 2.3 Other important shopping areas in Copenhagen 11 2.4 The provincial high-street retail markets 14 2.5 The regional shopping centres 16 2.6 The local shopping centres 20 2.7 The retail warehouse market 22 3. The retail property investment market 24 4. Key retail transactions 27 5. List of retail locations (cf. location map on page 19) 28 2 1. Introduction to the Copenhagen retail market In recent years, Copenhagen has been able to attract a great deal of foreign visitors as well as new inhabitants, who have created good conditions for shopping and leisure activities. Its central location has made Copenhagen a notable metropolitan city in the Scandinavian region. Furthermore, the Øre- sundsbroen, has created a fixed link between Denmark and Sweden and thus increased Copenhagen’s catchment area significantly. The Copenhagen retail market benefits from Danish designs, which are highly recognised, and several hereof have created strong brands both internationally and domesti- cally. A high level of tourist trade has arisen due to an increasing number of foreign visitors both through traditional tourists and Copenhagen’s ability to attract conferences and exhibitions. Denmark in general enjoys easy access by sea, air and land due to its central location and large investments in infra- structure during the last decades. The population masters excellent language skills, English being considered a natural second language. Furthermore, the fact that the Scandinavian languages are closely related makes cross-border shopping easy. The development in the Copenhagen area has created a wide range of shopping and leisure-time options, which satisfies all consumers’ needs and customers segments. Danish economy The Danish fundamentals have been very strong the last couple of years, mainly driven by increasing employment and low interest rate levels. However, in the recent year interest rates and prices have been increasing and thus caused a downward pressure on disposable real incomes of the households. Unemployment rates have continued to decline until recently but have now increased prompted by low growth forecasts due to the real economic effects of the credit crunch. In addition, homeowners have experienced decreasing equity values in the last year and have thereby put an end to the high growth levels in private consumption observed in recent years. For some time the Danish government has been reluctant to conduct an expansive fiscal policy due to record-low unemployment rates and rising inflation. However, the re- cent development in the financial market has been a cause for concern regard- 3 ing a prolonged recession, and the fiscal policy is expected to be made more lenient than anticipated some months ago. The expansionary fiscal policy is expected to boost consumption through both tax cuts and public consump- tion. The suspension of the specific compulsory pension saving has already been extended to include the fiscal year 2009 to realise income for consump- tion. In addition, interest rates have dropped and are expected to decrease even further, as interest rate reductions are expected from the European Cen- tral Bank. The recent increase in the interest rate spread between the euro interest rates and Danish interest rates of 50 bp has already disappeared, as the pressure on the Danish foreign exchange reserves has dampened. The current spread between the official lending rate of the European Central Bank and the Danish Central Bank is 125 bp. The recent interest rate reductions will surely dampen the negative effect on consumer spending, according to the gloomy growth forecasts. Danish consumer spending has developed favourably for more than a decade, but the growth is expected to decrease significantly in 2008 and actually falls with 1.1 per cent in 2009, according to the latest forecasts. Since 2003, the increase in private consumption has been most pronounced with an increase of almost 17 per cent from DKK 633.5bn to DKK 739bn. 4 Private consumption (index 100 = 2000) 130 125 120 115 110 105 100 95 90 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008E 2009E Source: Statistics Denmark and Danske Bank The primary explanation for the decreasing growth rates is to be found in the last 18 months where the Danish property market has seen climbing interest rates and falling housing prices. This has reduced the spending power of pri- vate households and means curbing consumer spending in the years to come, which is affecting Danish retail trade. Private consumption is expected to ex- perience negative growth in the next 12 months, which would be the first time after the turn of the millennium. Consumers have surely been affected by the current situation on the financial markets and a stressed housing market, which has the effect that the population is having a very pessimistic view of the country’s economy in the coming year. Despite current prospects of the future consumption growth, recent years’ increase in consumer spending has translated into a stable, strong demand for retail units in Copenhagen, especially in the high-street areas and in the district known as the Latin Quarter/Grønnegade area. Although the growth in private consumption is expected to decrease significantly, the consumer spending has grown to a stable high level. Combined with historically speak- ing low unemployment rates expected to prevail in the following years, the retail market is expected to remain strong within the traditional retail areas in Copenhagen. 5 The high-street area is increasingly dominated by international and Scandina- vian retail chains, whereas more local and domestic shops tend to relocate in the side streets, which have seen a significant development in recent years. Shops account for about 70 per cent of retailers at Strøget, which have af- fected retail rent levels positively. High-street rent levels have been stabilising at a high level, while a rather strong demand for retail units in the surround- ing areas, such as the Copenhagen Latin Quarter/Grønnegade area, have had significantly increasing rent levels over the last couple of years. However, rent levels in these areas are expected to stabilise in the years ahead. General overview The retail property market of Copenhagen counts around 4,000 shops, of which around 1,700 shops are located in the inner city1. In addition to a wide range of shops in Greater Copenhagen, a considerable number of shopping centres are located in the Copenhagen area. More than half of all Danish shopping centres are situated in the Copenhagen region, and this share has been increasing in recent years. With the opening of two new shopping centres in the second half of 2007 and several expansions of shopping centres launched, the number of shopping centres is set to increase. On a national level, the number of inhabitants per shopping centre has de- creased from 56,000 to 53,000 in 2008. In the Copenhagen region it is as low as 40,000. In 2007, Danish shopping centres posted revenues of almost DKK 50bn (EUR 6.7bn) in total, with nearly 50 per cent generated in shopping cen- tres located in the Copenhagen area. There is a large dispersion in the turn- over between the centres, with the 10 largest shopping centres based on turn- over accounting for about 38 per cent of the total turnover of the 103 largest shopping centres in Denmark. Parking facilities are highly prioritised by cus- tomers, who are willing to accept a rather long travelling distance to get a wider supply and variation in goods. 1Alt om København, www.aok.dk 6 2. The retail property occupational market 2.1 The high-street retail market in the Copenhagen city centre The Copenhagen high-street retail market is located in the area between Råd- huspladsen (the City Hall square), Kongens Nytorv and Nørreport station. It consists of the two main pedestrian streets, Strøget and Købmagergade. Strøget is 1.2 kilometres long, which makes it the longest pedestrian shop- ping street in the world. The streets off the main high streets have an abun- dance of shops and seem to be steadily spreading and including new districts. Shops located in the high-street area are predominantly Scandinavian and in- ternational retail chains and include some local retailers. Pronounced interna- tional retailers include Hennes & Mauritz, Miss Sixty, Benetton, Vero Moda, Diesel, Mango and Esprit. The most exclusive part of Strøget is the eastern part between Kongens Nytorv and Amagertorv, called Østergade. Many high- profile shops are located here and offer brands such as Burberry, Mulberry, Louis Vuitton, Gucci, Hermes, Chanel, Sand, Hugo Boss, Max Mara, Georg Jen- sen, Bang & Olufsen and Tommy Hilfiger. A majority of these shops have been located in Østergade for many years and have thereby attracted additional prestigious shops and made the area even more exclusive. Tommy Hilfiger, COS and Burberry have recently opened new shops at Østergade, where also a Ben & Jerry’s shop opened in 2008. Additionally, the area contains the de- partment stores of Magasin, Illum and Illum’s Bolighus and the shopping venue of Galleri K. Galleri K, which is facing Østergade, comprises about 25 shops and offers brands such as Topshop, Dyrberg/Kern, Urban Outfitters, Day Birger et Mikkelsen, The Moood, Adidas, Agent Provocateur, Replay and Evisu. In November 2008, a major Jack & Jones shop opened at Vimmelskaftet, com- prising 2,200 sqm of retail space, making it the largest shop in the Nordic region within the Bestseller Group.