If you look past the fjords, forests and snowy landscapes, you will also find some of Europe’s most dynamic and forward-thinking cities in Scandinavia and the Baltics. Scott Ball – who arrived in Stockholm by way of Chicago and Naples, Florida – has fast become an expert on these during his tenure at the helm of regional developer and operator Citycon.
From his office in Sweden’s capital, he describes how there are “some interesting similarities between a lot of the countries and cities in the region, especially in terms of their demographics. You are seeing substantial population growth in some cities despite the countries themselves not seeing population increases at all – there is inward migration”. This, he says, can provide real estate operators and investors with some very exciting opportunities, and is why Citycon is focusing its energy on the region’s larger urban centres.
To make the most of this opportunity, it is important to understand that the region’s cities are not a monolith and that there are some key nuances and differences between them. According to Scott, “Stockholm is perhaps a bit more business orientated, and is the region’s banking capital”, and Tallin is “extremely dynamic and very, very entrepreneurial”. Helsinki, on the other hand, is “serious and pragmatic”, while Oslo is wealthy and under a “lot of regulation that protects local businesses”.
It is a testament to Scott’s abilities that he has been able to not only grasp these trends and subtle differences but capitalise on them. The US native had a long and illustrious career before joining the brand, which included five years as the President and Chief Operating Officer of Starwood Retail Partners. Immediately before his appointment, he had been working as an independent advisor when he was called out of the blue by an old friend, who asked if he would be interested in running the operation. According to Scott, he was “looking for someone who could provide a different perspective on the portfolio, and over the course of several conversations, he convinced me to move to Stockholm”.
He says that the business was going through a period of transition when he joined, and that they were in the process of “beginning to sell off assets that were not a good fit”. Under his leadership, Citycon accelerated the process of concentrating its portfolio, which has resulted in its current footprint.
The business is now agile and highly fit for purpose. The company owns and manages a total of 37 shopping centres right across the Nordic region, and there is a clear focus on assets that are in growing urban areas and can be operated sustainably. According to the Chief Executive, its Pan-Nordic scale and diversification provide it with a degree of stability that can weather broader macroeconomic turbulence.
Scott says that Citycon has a relatively good pandemic, which reflects the overall experiences of the Nordic countries. There were – in addition to the hard work of his staff – two principal factors that contributed to this: the profile of the company’s properties and Nordic governments’ Covid policies.
In terms of the first factor, a large proportion of the business’ tenant base is made up of consumer staples like grocery retailers or pharmacists, which held up well where others fell off. While there was a twenty per cent drop in footfall, Scott points out that “the actual value per visit increased, which pushed things up overall”. He continues that within retail, there were clear winners and losers, with product categories like food and alcohol performing well while areas like movie theatres and fashion were weaker. This resulted in “the overall top line looking flat, but underneath there was a lot of movement up and down”.
In terms of the second factor, Scott is quick to point out how government policy supported the performance of Citycon and the region’s retail sector throughout the pandemic. There were marked differences in the responses of Nordic policymakers to the covid crisis, but both routes supported positive outcomes for the company. “We basically didn’t feel much of an impact because the markets we operated in except Norway were open,” he says, pointing out that this kept footfall higher than it would have been for an equivalent business in continental Europe. Norway is, of course, a key market for the company, but Scott says that here policymakers were quick to provide very robust support to businesses, which propped up their revenues in this market when they could not bring people through the door.
According to Scott, this strong performance in the face of significant challenges makes it more puzzling that Nordic retail is trading at a discount: “All retail in Europe is trading at this discount. We didn’t have the same headwinds as everyone else, but everyone priced us as if we did.” Part of this, he explains, is caused by a tendency for investors to lump all of retail into one bucket despite there being a huge number of differences between different sub-sectors. He continues that “investors in the USA are waking up to this and now price fashion-oriented and grocery-anchored businesses differently, but Europe is behind in this regard”.
There are some signs of change on the horizon, however. The Chief Executive describes how at the asset level, investors are already awakening to this distinction and are valuing retail real estate accordingly, but that this has not yet trickled through to equity investors. He concludes that it is “a real and present distinction that investors need to wake up to”.
A progressive strategy for a progressive market
Aside from its natural wonders, the Nordics are also famous for their world-leading approach to responsible capitalism. Sustainability and social democracy sit at the heart of ‘The Nordic Model’. And when speaking to Scott, it’s clear that this is a cornerstone of the company’s own approach too.
He is extremely proud of the fact that Forbes Magazine named them one of Europe’s leading sustainable businesses, saying that “green is in our DNA and is most certainly not a box-ticking exercise”. Despite this recognition, they are not resting on their laurels. Their new Helsinki metropolitan area project – Lippulaiva – will have its own Geothermal energy supply that will supply eight residential towers as well as the shopping centre itself.
This commitment to social responsibility doesn’t just manifest itself in Citycon’s green credentials either. He points out how the company’s centres aim to be a pillar of the communities in which they operate: “We aspire for our sites to be urban hubs rather than just retail nodes. For example, our upcoming Lippulaiva centre, which has a level of municipal services built into it, will be connected to both residential centres and the broader city metro.” This requires a substantial investment but is worthwhile in terms of building a centre with broad social utility.
The American executive explains that this is another area in which the company has benefitted from progressive governments’ forward-thinking approaches. He says, “These governments are very well-funded and are willing to pay market rent for services like libraries to be in an accessible shopping centre. They fundamentally want to make them available to their constituents and to put them at the heart of their lives.”
When talking to Scott, it is clear he has a genuine enthusiasm for Citycon’s mission, which is also reflected by his recent commitment to a new three-year deal: “We are at the beginning of the transformation and right on the edge of this really taking off, and I want to be a part of it”. It will be very exciting to see what this looks like in practice.