Retail Property Investment: Germany

JLL released the total German transaction volume to change hands in the first half of 2018 reached almost €25.6 billion. This figure, similar to the same period in 2017, shows the stability of the market. €4.5 billion of this accounted for investments in retail properties, but only €467 million was invested in the shopping centre segment. This figure may appear low, but, this is due to investors being more cautious and vigorous in their investigations of potential purchases – not surprising due to the uncertainty towards the retail sector. That said, it is of note that 8 new shopping centres are due to enter the market this year and consumer confidence is high. In the last 12 months, the country has seen online sales rise by almost 7% and physical store sales by 2.5%… momentum is definitely there.

Across Magazine has released a report following the “upheaval in the retail sector – prospects for retail properties” discussion at HSK Nordbank in Hamburg earlier this month. Some interesting points were shared regarding the German retail market including:

• Financers are paying much closer attention to the sustainability of retail properties, the flexibility of an assets structure and the operator’s concept and tenant mix.
• Repositioning and value-added concepts are becoming essential for sustainability.
• Discount shops are looking for more space to accommodate their growing selection of products. Their expanded offerings include bakeries (requiring fire safety to be reassessed), bottle return units and florists. All of these aspects will entice higher footfall levels and a diverse consumer demographic.

In a recent market report from Savills, it was highlighted the retail market could have an advantage over other commercial property due to the number of value-add strategy opportunities they hold. There may be concern over a decline in demand from retailers for physical space, however, shopping centres can utilise vacant units though alternative tenants such as F&B or leisure operators, or, depending on location, offices or residential units. To keep a center’s occupancy rate high, maintain a strong brand, entice quality footfall volumes and ultimately, reduce risk, keeping an asset’s value high and attractive to investors; combining an asset’s uses and diversifying the tenant mix is essential.

Although Shopping Centre investment in Germany is low, this could be due to the deals taking longer to complete. The number of new centres opening, the increased consumer demand, and a number of opportunities to strengthen the value and sustainability of an asset are showing an optimistic future ahead!