EXPO REAL: European Retail Investment Briefing A2.232 - International Investors Lounge by PropertyEU - EXPO Real, Messe München GmbH, Messegelände, Munich, 81823, Germany | 14:00 - 15:00

Germany is top of the list for retail

Germany is consolidating its position as the most important investment market for retail in Europe, delegates heard at the PropertyEU Investing in European Retail briefing, which was held at EXPO REAL in October.

‘Germany is the strongest investment market and transaction volumes in the first half of the year are over €4 bn, while the UK is slightly under,’ said Sandra Ludwig, head of retail investment, JLL.

Retail accounts for 18% of all transactions and the high street in particular is seeing a renaissance, accounting for 50% of all retail transactions, compared to 29% last year. E-commerce continues to deliver strong growth, with fashion as the strongest component, accounting for 12.3% of online sales, according to JLL.

In all European countries good economic growth, lower unemployment and real wage increases are supporting consumer confidence, creating a positive backdrop for the retail sector.

Corporates are being very active, said Ludwig: ‘European retailers, groups like Ikea, Dyson, H&M, Hema, Primark, Lidl and Decathlon, encouraged by strong demand, are driving international expansion in different sectors with selective store openings.’

However, investors are ‘more cautious on shopping centres, while the high street and retail parks are still interesting,’ said Ludwig. ‘If rental levels are good they still trade well. Physical stores hold value, but they need to improve profitability.’

Retailers are reacting to the growth of e-commerce, said Herman Kok, head of research, Meyer Bergman: ‘Almost all retailers are switching to multi-channel models, using the store as just one stage of the selling process. Retail is changing from a purchase-based product to an experience.’

Retail sales are going up, he said, but ‘the landscape is shifting: there is a clear online/store differentiation, and further polarisation between prime and secondary locations. We firmly believe in the cities, which is where people want to work, live, shop and have fun. Urban areas are becoming mixed use again, and retail is what knits residential, offices and all the functions together.’

Urbanisation is happening in smaller cities as well and that’s where opportunities in the high street are to be found, said Tobias Gollnest, managing director, investments, CORESTATE Capital Advisors.

‘Our strategy is to go to medium-sized towns in Germany that foreign investors have never heard of, where the economy is supported by local companies,’ he said. ‘Yields are well above the 3% prime yields you get in Hamburg or Frankfurt, which I don’t find attractive. Smaller cities are the best locations.’

Retail is such an interesting sector now because there is a lot of disruption in the market. ‘Many retailers are changing their offer because customers are not just interested in shopping anymore, they want restaurants, cafés, leisure and entertainment,’ said Anke Kaukars-Haverkamp, head of shopping centre services, JLL. ‘We are at the very beginning of this trend of exploring alternative uses for vacant spaces.’

The expansion of food and beverage and leisure offerings in shopping centres and the high street will continue because it is what consumers demand and landlords understand this, said Michael Harrison, co-founder and COO, Gravity Active Entertainment.

‘When we started three and a half years ago in the UK we had to take the old leisure box at the back that no one wanted, but now shopping centres are seeing entertainment as a real differentiator,’ he said. ‘Now we are looking at Germany and other mainland European countries and beyond. It is a worldwide trend, so we are prepared to go anywhere.’

Panellists agreed that retail is not in crisis as some say, but it is evolving and adapting to consumers’ changing demands and priorities. Success will depend on meeting them or even anticipating them.

‘It is not all doom and gloom out there,’ Harrison said. ‘There are some really good stories and I am positive about the future.’