Citycon seeks tie-up with resi developers to transform into mixed-use owner

Nordic listed retail specialist Citycon is in negotiations with several potential joint venture partners to team up on a number of mixed-use projects, CEO Scott Ball told PropertyEU. The partnerships would help the company speed up its strategy to move away from a sole focus on retail assets and expand into residential, according to Ball.

‘We are working to create a number of JVs with residential developers to accelerate our strategy to become a 40-60 residential and retail owner over the next five years,’ Ball said during an interview. This compares to an 80% share accounted by retail assets in the company’s existing portfolio.

As part of this strategy, Citycon last year hired Kaveh Feliciano as residential development boss and has since been working with local municipalities to obtain additional building rights across a number of its own sites. ‘When I became CEO a couple of years ago, I realized that almost all of our assets were in top tier cities and well connected to local transport, so it would make a lot of sense to be able to offer residential units in those sites, alongside providing groceries and municipal services that people need on a daily basis,’ Scott recalled.

The company currently has about €200 mln worth of building rights in various stages and across several different locations which could allow it to develop office and residential space above its retail centres or on adjacent land, he said.

Citycon’s first mixed-use scheme in particular is due to open in April next year. Located in suburban Helsinki, the Lippulaiva development project consists of two levels of retail offering including a library and municipal services as well as a total of eight residential buildings op top of the shopping centre and in the near surroundings, located in the direct vicinity of a metro station. While two of the residential sites have been sold to a residential specialist, Citycon is developing the remainder of the residential buildings itself, with at least four towers planned for rental units. The new Lippulaiva project will provide a total of 30,000 m2 of residential building space in addition to 44,000 m2 of commercial space with approximately 100 units including grocery stores, cafés, restaurants, services and office spaces.
Covid-19 impact
Following the start of the pandemic in March last year, Citycon has not suffered as much as many other public property companies that focus on retail, not least because its centres were not shut down. But another reason is to be found in the group’s focus on necessity-based retail and municipal services, Scott said. ‘We held up extremely well during the pandemic and we have continued to reward shareholders with a dividend. I believe this has partly to do with our  merchandise mix, which is skewed towards necessity-based retail with a growing share of municipal services.’
Looking forward, the company will continue to shift its focus more towards groceries and municipal services and away from fashion, he added. ‘Online sales have impacted the retail business in a significant way, not just in terms of their market share, but in terms of the price transparency offered to the consumer. This has really squeezed the margins for some retailers, so if you are in fashion which simply distributes goods produced by others, you will have a very difficult time surviving, while if you are vertically integrated you have a much better chance at survival because you control your product. So we have been reducing the fashion component in our portfolio significantly over the past few years and it is already half of that of our peers.’
Citycon owns 10 centres in Finland and Estonia, 17 in Norway, and 8 in Sweden and Denmark.

Citycon is 49.2% owned by Israel’s Gazit-Globe Ltd and 7.5% by CPP Investment Board. Ilmarinen Mutual Pension Insurance Company owns 7%. Other shareholders include The State Pension Fund, Elo Mutual Pension Insurance Company, OP-Henkivakuutus Ltd., and Pakkanen Mikko Pertti Juhani.
It is listed on the Nasdaq Helsinki stock exchange and remains a member for EPRA. Ball also sits on the board. Ball joined as CEO in November 2018 having been president and COO of Starwood Retail Partners, which owned numerous retail assets in North America.


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