Retail Resilience - Spotlight on Germany

In this month's 'Retail Resilience', Sarah Hoffmann, Head of Retail Investment Germany, discusses the unique characteristics and investment opportunities in Germany's retail real estate market. This insightful article delves into the decentralised nature of German retail, the country's appeal as a prime investment destination, and the diverse landscape of active investors. From the "Big 7" cities to promising B- and C-tier locations, learn about the hottest sub-sectors and emerging trends shaping the market in 2025. Whether you're an institutional investor or a private player, find out why Germany's retail real estate sector offers a compelling blend of stability, diversity, and growth potential.

What's a unique characteristic of the German retail market?

A unique characteristic of Germany’s retail market is its decentralized nature, reflecting the country's federal structure. Germany boasts 80 cities with over 150,000 inhabitants and 14 cities with more than 500,000 residents. This, combined with a total population of 83.2 million and some 35 million tourist visits annually, creates an incredibly dynamic retail market. German retail is characterized by a diverse mix of international, national and regional retailers. German grocery giants are not only domestic blue-chip companies but have been expanding globally.

Why should investors consider Germany as a prime investment destination?

Investors should consider Germany a prime investment destination due to its long-term stability and security, with a robust socioeconomic structure. Currently, investors can achieve solid returns, with high street properties and shopping centers yielding top results. The market promises stability and long-term growth, while Germany’s building regulations provide high protection for retail properties. New out-of-town developments are rare, which helps protect existing assets.

Which city would you recommend investors to invest?

While the "Big 7" cities (Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart, and Düsseldorf) are highly sought-after, there’s also significant demand across almost all sub-asset classes. For yield-oriented investors, solid B- and C-tier cities offer excellent credentials with significantly higher returns.

What type of investors are most active in Germany?

Germany has a heterogeneous investor landscape, with both national and international investors from institutional and private sectors active. Right now, private investors and international capital sources are dominant. There’s high demand from French SCPI vehicles and strategic investors who previously invested indirectly in real estate are increasingly acting as direct investors. Retailers themselves are also active buyers, particularly when securing strategic locations for retail parks and high street properties.

Since the start of the year, shopping centers are showing strong potential. The first shopping center transaction of the year, Blechen Carree in Cottbus, completed in January (JLL acted as sell-side advisor), with more expected to follow. The market is extremely liquid at attractive yields, with a recent sales process attracting more than 10 bids.

What is the hottest sub-sector in your market right now?

Looking ahead to 2025, several sub-sectors are anticipated to become prominent.

High street assets in A-locations are expected to generate significant attention. We are shortly about to start marketing for some large volume assets. Food-anchored individual properties and portfolios remain highly appealing, with persistent demand. New international investors are entering the market, aiming to build strategic portfolios.

Commercial buildings in B- and C-tier cities present a real yield opportunity. Investors can build diversified portfolios of small to medium-volume objects with net initial yields of > 6-7%. This section of the market has been largely left to private investors, but international investors are now discovering its’ potential.

Overall, Germany's retail real estate market offers a unique blend of stability, diversity and opportunity across various sub-sectors and city tiers, making it an attractive destination for an increasingly wide range of investors in 2025.