What is the state of the retail asset class in Germany? Market experts Gabriele Friedl, Senior Product Specialist at BayernLB, Lars Jähnichen, Managing Director of the IPH Group, Maximilian Ludwig, Head of Asset Management DACH at Real I.S. and Dirk Wehinger, Managing Director of Argon, explored this question at the joint press conference “Outlook Retail Real Estate 2025”.
Financing Retail Real Estate Is Becoming More Challenging
The economic conditions for the retail sector in Germany will remain challenging in 2025. Consumer uncertainty is high and the consumer climate is subdued. The propensity to save is correspondingly high. In its current forecast, BayernLB assumes that economic development in the eurozone will remain weak overall and that long-term interest rates will be between 2.5 and 3.0 percent.
“The retail real estate portfolio in Germany will require more intensive financing and management in the coming years. As a financing bank, it is therefore imperative that we are able to identify a perspective for the property today,” comments Gabriele Friedl, retail expert at BayernLB. “A detailed review process is required for inner-city commercial buildings and other retail properties. Among other things, we take a comprehensive look at the macro and micro situation. How are vacancies and footfall developing in the surrounding area? How is the building designed in terms of the need for flexibility of the space in relation to the ever faster changing tenant concepts, and what property-specific tenant and subsequent use concepts are planned? The profitability of a conversion or conversion of a retail property and the ESG criteria of the property also require intensive examination,” Friedl continues.
Shopping Centers Need A Narrative And A Willingness To Invest
“In many discussions, we are seeing a renewed increase in national and international interest in shopping centers in Germany,” says Lars Jähnichen, Managing Director of the IPH Group. According to the latest ZIA spring report, for which the BBE Handelsberatung and IPH Group were responsible for the retail market analysis, the retail sector in Germany recorded a 1.3 percent increase in sales to 657.5 billion euros in the past year 2024. The authors of the study forecast an increase in retail sales to more than 700 billion euros by 2028 – at the same time, an estimated ten million sq m of non-food retail space is likely to be lost within the next ten years. “The increasing vacancy rate offers enormous opportunities for new uses, more innovative concepts and strong brands in city centers. The larger and more relevant the city, the greater the variety of potential reuse options for all types of retail properties,” explains Lars Jähnichen, Managing Director of the IPH Group.
However, the polarization in German retail continues to increase. Luxury and discount are doing well, while middle class consumers are struggling. Strong cities and strong shopping centers will continue to gain, while B and C cities are threatened with massive losses of non-food space. The focus for retail properties today and in the coming years is clearly on portfolio developments. “There is a huge need to reposition shopping centers in Germany, and many properties are due to change operator in 2025. Owners are looking for professionalism, because you can only move a property forward if you actively shape it and not just manage it. Shopping center owners not only need a permanent willingness to invest, but also a clear positioning of the properties and a coherent story – both for the tenants and all other market participants,” adds Jähnichen.
Moderate Increase In Prime Rents And Transaction Volume Expected In 2025
“The bottom appears to have been reached in the retail asset class. The interest rate trend should ensure a greater willingness to invest and a transaction volume in 2025 that should at least reach the level of 2024; we may even see a modest increase,” says Maximilian Ludwig, Head of Asset Management DACH at Real I.S. Depending on the sub-asset class, prime yields were between 4.6% and 7.5% last year – this stabilization is likely to continue in 2025. The spread between well-located and poorly positioned shopping centers is widening.
“We expect prime rents to increase by two percent annually in the coming years,” continues Ludwig. Inner-city properties, high-street properties, food and retail parks as well as well-positioned shopping centers in good locations remain attractive for institutional investors. In contrast, shopping centers in B and C locations continue to fall.
Retail Only Works With “Natural Footfall”
“As part of a family office with a long-term focus, we are diversified and deal in-house with real estate in Germany and abroad, securities, investments and our own trading concepts. Attractive returns have not been easy to achieve in the real estate sector and especially in the retail real estate sector for some years now – compared to other investments, for example. For our investments in retail properties, we are therefore very interested in traffic hubs and are looking for natural footfall here,” explains Dirk Wehinger, Managing Director of Argon GmbH from Stuttgart, which was founded in 2008 and manages the Stachus Passagen in Munich, for example.
“In our opinion, retail only works if there is a natural flow of visitors at the location. Retail needs footfall, but the potential for retailers to generate footfall themselves is becoming increasingly limited,” concludes Wehinger.
