- Conversion and alternative use are key issues for large-scale high-street properties
- REWE Group keeps pursuing its expansion trajectory, eyeing various unit sizes
- Demand for grocery retailers and mixed-use venues set to increase
- Open-ended special AIF of Warburg-HIH enters investment period
- General decline in investor interest and few retail property transactions
- Prime high-street pitches remain an attractive investment destination
Berlin, 3. December 2020 – Germany’s retail real estate sector is under growing pressure to transform and modernise. For the years ahead, experts anticipate a wave of transformations, restructuring efforts and conversions, notably involving large-scale high-street retail properties such as shopping centres and department stores. Demand for grocery retail assets and mixed-use real estate with a food focus will continue to grow. These are the insights gained during the online press conference hosted by Martin Mörl, Managing Director at Girlan Immobilien, Stefan Koof, Head of Expansion and Real Estate at REWE Handel Deutschland, Jens Nagelsmeier, Head of Transaction Management Retail at Warburg-HIH Invest, and Karsten Jungk, Managing Director and Partner at Wüest Partner Deutschland.
Waning Interest among Investors Karsten Jungk, Managing Director and Partner at Wüest Partner Deutschland, summarised the situation on the retail market: “The onset of the coronavirus pandemic has necessitated a radically differentiated assessment, more so than for any other asset class. On the one hand, retail revenues registered a one-year growth by 8.2 percent in October, according to the Federal Statistics Office, with sales of furnishings, household appliances and building materials growing by 14.2 percent. On the other hand, the apparel industry alone suffered revenue losses of 29 percent during the first six months 2020 compared to the second half-year of 2019.” Jungk went on to say: “Interest among investors is very rapidly drying up. As a result, there is scant market evidence of transactions. What we are seeing as appraisers is that operators and investors are pulling pre-prepared concepts for reusing or restructuring their assets out of the drawer. Off-high-street locations tend to be at a disadvantage. Conversely, properties in performing locations with well-functioning concepts will survive the coronavirus crisis and the structural change. Prime high-street pitches remain an attractive investment.”
Potential Floor Space Availability for Small-Scale and New Use Types now in Demand Martin Mörl, Managing Director at Girlan Immobilien, is bracing himself for growing pressure to act: “We assume that a large number of larger-scale high-street retail properties in Germany are under enormous transformation and conversion pressure. In the years to come, we will therefore see numerous retail venues now obsolete switch to alternative or new uses – a process that holds a promise of huge opportunities, too. The floor space potentially vacated, for instance in department stores and commercial buildings or shopping centres could give new, small-scale and popular use types and product ranges a chance to return to inner cities. Formats that come to mind include housing, micro-logistics, healthcare, services, offices and public uses, but also innovative retail and gastronomic concepts. Retailing will remain a fundamental component of inner cities.” Mörl went on to say: “On the whole, retail real estate as asset class will become more demanding and complex, a fact that is reflected in the considerably increased requirements that investors, owners, tenants and municipalities bring to the table when discussing property and use concepts.”
Rapid Growth in Food Retail Sales By contrast, retail warehouse parks and food retailing have benefited from the new market situation. Grocery sales registered a year-on-year growth by 12 percent between January and September 2020. Stephan Koof, Head of Expansion and Real Estate at REWE Handel Deutschland, commented: “Sales during the first nine months of the ongoing year were driven by above-average growth in our REWE and Penny supermarkets. Unlike other players, we will therefore push forward with our expansion strategy exactly as planned. We have a high degree of flexibility when it comes to architectonic and use-based peculiarities, and are very much open to the idea of mixed-use properties. The same is true for the footprints we require: From the intra-urban REWE convenience stores of 500 square metres to the Penny discounters, and from the larger REWE supermarkets all the way to the REWE Center markets of more than 5,000 square metres, we will work with any floor-space requirements a given site might have.”
Groceries and Mixed-Use Real Estate Increasingly in Focus Jens Nagelsmeier, Head of Transaction Management Retail at Warburg-HIH Invest, added: “Demand for grocery retailers will keep growing because they offer a high covenant strength and stable long-term cash flows. Selling prices will also keep going up, even if their growth won’t be able to match the dynamic of other asset classes. But since the supply in available real estate remains limited, mixed-use properties are increasingly moving into focus. All types of use that complement groceries qualify as sensible additions, including doctors’ offices or apartments, for instance. Moreover, the subject of sustainability will further gain in significance next year. Operators with EV charging stations, photovoltaics, etc. are already well-positioned in this context. In the medium term, carbon-neutral green buildings will become standard.”
Warburg-HIH is Invest currently going through the investment period with its open-ended special AIF “Warburg-HIH Perspektive Einzelhandel: Fokus Nahversorgung.” The investment fund has 17 properties in its portfolio. It focuses on retail warehouse parks and neighbourhood retail centres, anchored by food retailers in economically stable locations in Germany and with ten to 40 million euros in terms of total sum invested. The minimum subscription amount is five million euros. The annual dividend yield will be somewhere between 4.5 and 5.5 percent.
