Commercial real estate 2024: Separating the wheat from the chaff

The slowdown in inflation and the rise in real wages are expected to slightly improve retail sales and, at the same time, the retail space market in 2024. However, the short-term outlook for the retail space market is still challenged by weak level of consumer confidence, which is an effective indication of the success and outlook of the retail trade. Changes in consumer confidence have historically predicted fluctuations in retail turnover.

In the retail space investment market, the sector’s transaction volume fell to the lowest level in the statistics history of KTI last year, corresponding to 10% of the total volume in 2023. In the investment market, demand is expected to continue to be selective and to focus on defensive, often grocery-driven spaces, considered a necessity such as supermarkets and big boxes. The importance of stable tenants has continued to grow.

The challenges of the retail real estate market have slowed down the construction of new retail spaces. The number of square metres of commercial real estate completed in the last 15 years has remained lower than last year’s figure in only two years. The development of domestic retail over the last two years has been strongly divided into two trends: a successful discount store and grocery trade, and a specialty trade that is struggling with challenges, with the exception of a few industries. The grocery trade is growing even faster than inflation. New completed retail projects have thus typically been smaller grocery trade spaces.

Rents of business premises have risen briskly even in the midst of challenges compared to apartment rents. According to Statistics Finland, rents of business premises increased by 5.6% in 2023 compared to the previous year. However, the variety of sub-sectors is wide, and their success and attractiveness in the investment market differ considerably. The market situation is different between city centres and grocery-driven shopping centres, for example.

Changes in the fundamental of the retail space market of Helsinki city centre

The situation of retail real estate in the centre of Helsinki has changed significantly due to the coronavirus pandemic. This has been influenced by both the increase in remote office work and the decrease in international tourist flows. In addition, the importance of e-commerce is increasingly emphasised, for example. The metropolitan area has multi-centres, and new shopping centres have shaped the status of the traditional city centre. The restructuring of retail has favoured retail hubs dependent on cars.

According to the City Centre Vitality Survey, the relative vitality of the centre of Tampere was the best in Finland in 2023. According to the survey, this was due to the tram, the Arena and the tunnel, which have played a significant role in the increased sustainable vitality of the centre of Tampere.

In the retail space market, the importance of micro-location and accessibility is even more pronounced. According to the City Centre Vitality Survey, the share of available retail spaces in the core blocks of Helsinki was 15.2% in the 2023 measurements, while in the rest of the city centre, the figure was 8.0%. The commercial spaces in the centre of Helsinki have been challenged by shopping centres in public transport hubs that were completed and expanded at the end of the 2010s. Their advantages have been extensive selections and good accessibility by both public and private transport. In addition, it was the grocery and big box retail premises, usually accessed by private cars, that survived the pandemic better.

Shopping centres recovering at a good pace

After the pandemic, the sales of shopping centres have grown faster than the rest of retail. Statistics for 2023 show that shopping centres have maintained their strong position. Last year’s 6.2% increase in total sales was a good achievement in challenging times. In addition, in 2023, the number of visitors increased by 8.7%, bringing the figures close to those in 2019. However, compared to 2019, the number of visitors was still over 4% lower.

The increased sales in shopping centres were predicted by the shopping centre barometer, conducted by the Finnish Council of Shopping Centers in October 2023. According to the barometer, the expectations of the development of visitor numbers and sales remained positive, especially in large shopping centres. Nearly two thirds of the respondents to the barometer expected both the number of visitors and sales to increase in the large shopping centres in the Helsinki Metropolitan Area, and the outlook for large shopping centres elsewhere in Finland was clearly positive in the barometer. In light of the actual figures for 2023, shopping centres began this year from a good starting point.

Additional information:

Anton Takkavuori
Real Estate Analyst
Retta Management
Puh. 0400 853 528

* The figures are based on data from KTI, Statistics Finland, the Elävät Kaupunkikeskustat Association (EKK) and data and documents published by the Finnish Council of Shopping Centers