Retail in transition

Besides Germany’s special situation, what makes retail real estate so attractive to investors? One reason is the higher returns in this area. However, high demand for investment products is putting significant pressure here too. Will the properties be profitable in the long term? Will their value increase, or is significant risk looming in the background?

The fact is that the internationalisation of market-driven retail companies is progressing. Their further expansion is increasingly pushing traditional, local/regional specialty stores out of the inner-city shopping zones. The result is that in almost all capitals in Europe, the retail supply is nearly identical. This “standardisation” might be regrettable, but it is not retractable. What began in the textile and clothing segment, as well as luxury segment, can long be seen in grocery store chains, furniture and home furnishings (e. g. Ikea), drugstores (Schlecker, dm-Drogeriemarkt), electronics (Saturn, Media Markt), as well as do-it-yourself (DIY) products (Obi, Hornbach). While US-American and British companies mainly target the Western and Northern European markets in their expansion goals, retail companies from Germany, France and Italy target Central, Eastern and Southeast Europe – and increasingly Turkey. Large retail chains not only guarantee secure rent income, they are generally also able to pay higher rents.

On the other hand, retail is also experiencing a clear evolution, DEGI Research determined in their study “Perspectives in the European Retail Real Estate Markets”. They also determine that the number of sales units is getting smaller; however, the individual unit is taking up more space. Another point is that the “Greenfield development” is losing attractiveness as a location, and the integrated inner-city location is becoming the preferred location for retail real estate. The architecture of retail real estate is also increasingly becoming more differentiated. There are two main concepts: standardised spaces often used by suppliers of daily needs (extremely popular with grocery discounters), and a more exclusive atmosphere for event shopping, which is often complemented with additional offers such as gastronomic locations, cinemas, fitness and wellness offers, as well as cultural and other recreational and entertainment offers.