For the whole of 2018, transactions with retail facilities, most of them “supermarket”, amounted to 9.8 billion euros. It was a little short of the 10 billion euro mark, which was exceeded over the past 10 years in 2015 and 2017. Against the backdrop of the extraordinary rise in the German investment market across all property classes, the decline in the retail sector compared to 18% of the previous year is striking. The market share was reduced to only 16%. This is one of the lowest rates in a long time. On average over the past 10 years, it was about 28%. Despite this, retail facilities are in second place compared to other asset classes. Commercial real estate in Germany, supermarket.

Along with an unusually large number of high-end office properties sold, structural changes in the retail space have led to a below-average result. The negative effects of digitalization and the growth of online sales are affecting retail more than any other asset class. Dramatically changing consumer behavior will bring about major changes for sellers, owners and real estate investors. In line with this, the awareness of risks in relation to commercial real estate has increased significantly over the year. Market participants are increasingly avoiding certain retail locations and types of organizations that are more affected by structural changes. This includes rarely visited shopping centers with goods that are widely available online (fashion, media, electronics) or located in less attractive small towns or on the periphery of class A cities. The same applies to commercial buildings within the city. On the contrary, retail trade objects, the main direction of which are food products, are gaining more and more popularity. This may include individual specialized markets, specialized or hybrid centers.

Thus, this type of organization, which also includes supermarkets, discounters and hypermarkets, tops the list in terms of the number of transactions. It is followed by real estate on the main shopping streets and commercial buildings with 31%. Deals with shopping centers have gone far to third place with 17%. Judging by the smaller amounts of investment pouring into specialized markets and market centers, a slightly different picture emerges when determining the volume of transactions. The format of retail facilities accounts for a third of the invested capital, about 18% for shopping centers. In the first place with an indicator of 48% is real estate on the main shopping streets and commercial buildings. This result was largely driven by the largest ever German commercial real estate transaction in 2018: Signa Prime Selection’s equity acquisition of 59 Kaufhof properties for just under 2 billion euros.
As in the previous year, the share of “portfolios” at 55% or 5.5 billion exceeded the share of single purchases. They amounted to 45% or 4.4 billion euros. Geographically, the main point was again outside the seven large investment centers of the country. Outside the TOP-7, two thirds of the volume of purchases are noted.

The share of foreign buyers increased by 7 percentage points during the year to 44%, which is slightly larger overall than the share of asset classes of 40%. Austria, as the home country of Signa, tops the list with a 22% volume share. The United States (more than 6%) and Great Britain (almost 5%) are far behind.
Real estate agencies in the group of buyers, having reached the mark of 2.8 billion euros or a market share of 28% due to the market-defining transaction with Kaufhof, outpaced open-ended real estate funds (2.0 billion euros or 21%) and became the largest investors. Asset managers are in third place (1.7 billion euros or 18%). Leading among the sellers were “opportunity” funds with their 20% share, such as Joint Venture, which is behind the Kaufhof deal. They are followed by open real estate funds with 18%.

The upper limit of the yield has largely stabilized during the year. In contrast to the office or logistics markets, the growth potential in the rental sector as a whole has been exhausted. This primarily applies to commercial properties with a prestigious location and shopping centers. Sales per unit area are in a state of stagnation. The share of retail food products is growing, as well as catering concepts that increase attendance. All this partially leads to a reduction in the volume of rent of supermarkets.
The upper limit of profitability for supermarkets with a prestigious location in the seven investment centers of Germany in December was between 2.75% (Munich) and 3.30% (Düsseldorf, Cologne). Shopping malls provide 4.50% on average. In search of decent interest, most investors highly value specialized markets and market centers with their yields sometimes well over 5% and a solid influx of funds.

Against the backdrop of profound changes in the structure of retail facilities, the selective behavior of investors when purchasing retail facilities will continue in 2019. Many cautious investors in this cycle may be waiting for the long overdue revival and repositioning of malls and commercial buildings within the city before turning their attention to non-core products. With this development, shopping malls can provide revenue growth throughout 2019. The specialty market segment, dominated by food retail, will continue to lead the way in operations, resulting in stable, slightly higher purchase prices. Due to the limited number of objects, despite the large number of transactions, it must be assumed that this year the milestone of 10 billion euros will not be passed. Moreover, the corresponding product “Commercial real estate in Germany, supermarket” is becoming scarcer.

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