By Art Patnaude 

Last month, 50,000 shoppers showed up as Unibail-Rodamco SE opened the biggest mall in the Nordic region with fireworks, music, parties and other events billed by the Paris-based real-estate giant as "Stockholm's largest housewarming."

The festivities at the Mall of Scandinavia reflected the splashy side of Europe's largest listed landlord's retail strategy as it tries to cope with competition from online shopping while navigating Europe's uncertain recovery. The strategy's less-exciting side involves selling off smaller shopping centers.

But shoppers and investors are paying more attention to Unibail's strategy to develop malls as leisure destinations.

The Mall of Scandinavia has an IMAX theater, more than 20 restaurants and a "Flagship Avenue" aligned with tony shops sporting facades more than two stories tall. Most days the mall features cooking demonstrations, live music and attractions like rides on a Formula One simulator at the new Boss store.

Close to a quarter of the new mall's 1.1 million square feet is devoted to entertainment and eating, an unusually high percentage. "We want to create destinations where people can spend more time," said Jaap Tonckens, Unibail's chief financial officer. "The longer time people stay, the more they spend," Mr. Tonckens said.

About two decades since online shopping took off, Unibail is amping up its effort to show the world that brick and mortar stores are still dominant players in the retail world. The company owns office buildings and convention centers, but retail property accounts for around four-fifths of its portfolio.

And Unibail's shopping-mall development pipeline has never been bigger, according to Green Street Advisors. At EUR8.2 billion ($8.69 billion), the projects under way make up a significant chunk of its overall property portfolio valued at EUR37.7 billion, Green Street said.

The development push comes amid a consumer recovery in Europe thanks in part to inexpensive energy prices and the relatively low value of the euro, which is helping European exports. Growing traffic and sales at stores are boosting the likelihood that landlords can bet on rising rental income.

At the same time, retail landlords are growing increasingly confident that competition from online retail won't have as great an impact on brick-and-mortar stores as some analysts predicted. Some traditional retailers--such as sellers of books and electronics--have been clobbered.

But other companies, such as clothing stores, are adapting to a world that requires retailers to have presences in stores and online that complement each other.

"When online first came about, you were either a store or online," said Jonathan Rumsey, of Cushman & Wakefield. "But retailers know they need a physical store presence for branding and so people go shop and touch the goods they're buying."

Unibail is selling smaller malls away from major cities, partly because they are being hurt more by online retail. Without some of the attractions of bigger malls, they are more likely to be shunned by shoppers.

"Our focus is on large, leading shopping centers in major metropolitan areas," Mr. Tonckens said. "It's one area we think retail will be successful."

Unibail has sold EUR2.1 billion of property deemed not to be core to its strategy, the company said. In the past two years, Unbail has sold 31 properties and acquired six, according to Real Capital Analytics.

Investors have largely applauded Unibail's moves. The company's shares have been on a mostly upward trajectory after plummeting below EUR75 in 2009, and hit their record high of more than EUR260 earlier this year. Currently they are trading in the EUR245 range.

Unibail was founded in 1968, and listed on the Paris stock exchange in 1972. In 2007, the firm bought Dutch rival Rodamco Europe NV for EUR11.2 billion, creating the current company.

Other new Unibail locations include Polygone Riviera, a 750,000-square-foot open-air shopping center near Nice, France, that opened in October. The Mall of Scandinavia, which cost Unibail EUR640 million, is the biggest mall in the company's portfolio and it is also "the best mall in our portfolio in terms of technology," Mr. Tonckens said.

To keep people in stores longer, the Mall of Scandinavia provides perks such as valet parking, personal shopping assistants and cellphone charging stations. These extras are also new for Stockholm and most other parts of Sweden, where smaller, decades-old malls tend to dominate.

"There has been a real novelty factor to it," Mr. Tonckens said.

But Unibail's strategy isn't without concerns. U.S. investment bank Goldman Sachs last month downgraded Unibail's shares to a "sell" rating from "neutral" due to "a number of headwinds," including lighter mall foot traffic and "tighter leasing negotiations with retailers," the analysts said in a note to investors. The bank also said some of the firm's EUR1.5 billion of uncommitted development projects are likely to be delayed.

Other analysts have expressed concern about the company's current level of debt. According to Green Street, Unibail's debt is equal to about 42% of the value of its assets, compared with 25% in 2007. If the value of its property portfolio falls, Unibail "could have a much worse experience than they did in the previous downturn," said Peter Papadakos, managing director at Green Street.

Unibail executives say the company's financial position is solid. "We're in a stronger position now than we were in 2007," Mr. Tonckens said. "We are prepared if things go bump in the night."

Write to Art Patnaude at art.patnaude@wsj.com

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(END) Dow Jones Newswires

December 01, 2015 03:44 ET (08:44 GMT)

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