The European retail real estate market has undergone profound structural change in recent years. E-commerce, the pandemic, rising interest rates, and restrained consumer spending have altered valuations and investor strategies. However, retail real estate investment expert Roman Müller sees a turning point in retail. A clear positioning of locations is key.
In the interview with ACROSS, he explains why Union Investment consistently differentiates between convenience and destination, why retail moved through the correction earlier than other asset classes — and why well-positioned retail properties are increasingly returning to the focus of institutional investors.
ACROSS: Mr. Müller, in recent months Union Investment has sold large, dominant shopping centers while increasing its investments in smaller, grocery-anchored formats. Is this a cyclical adjustment to the market environment — or a structural realignment of your retail strategy?
Roman Müller: Neither. Our strategic realignment took place several years ago. In 2018/19, we fundamentally reviewed our retail strategy. It became clear at the time that e-commerce was not a temporary phenomenon but a structural shift. At the same time, early signs of saturation in traditional space concepts were emerging.
By then, it was evident that brick-and-mortar retail can only succeed long term with clear positioning. Since then, we have consistently operated along two poles — convenience and destination. On one side are neighborhood supply and grocery-anchored retail parks. On the other are dominant retail locations with clear regional or supra-regional appeal — large shopping centers or prime high-street locations in major metropolitan areas.
“Retail today only works with clear positioning — either as a convenience location or as a destination.”
ACROSS: Why is this dual structure so central to you?
Müller: Because we have seen that the greatest vulnerability arises where there is no clear profile. In the neighborhood supply segment, we see strong liquidity across nearly all market cycles. During the pandemic, this segment proved particularly resilient. At the same time, we were historically underrepresented there and therefore built up our exposure in a targeted manner.
For destination locations, the key is market leadership within the respective catchment area. Strong locations become stronger because purchasing power concentrates there. Weaker ones lose ground.
ACROSS: Yet you sold dominant assets such as Palladium in Prague or Magnolia Park. How does that fit your strategy?
Müller: One must consider fund logic. We manage a significant number of real estate funds — both institutional mandates and retail funds. Our retail strategy must therefore always align with the respective fund strategy.
An asset can be strategically perfect from a retail perspective and still be sold if it makes sense from a fund or market standpoint. We held Palladium for around ten years. The Czech Republic was a single-asset market for us, requiring dedicated infrastructure. In the long term, that is inefficient. At the same time, an attractive exit opportunity arose with a significant performance contribution.
Strategy does not mean holding assets at any cost — it means acting with discipline in line with market and fund logic.
ACROSS: Are there subcategories within retail real estate that you find particularly attractive — and others you deliberately exclude?
Müller: We are one of the few European investors covering the full breadth of the retail universe. We currently manage around €8 billion in retail, including approximately €5.5 billion in shopping centers and more than €1 billion each in neighborhood supply/retail parks and high-street assets.
We do not invest broadly but very selectively within sub-asset classes. What we do not pursue are highly specialized formats such as standalone DIY stores or traditional downtown department stores without a clear future perspective. At present, we do not see a compelling risk-return profile there for our funds.
“We do not invest in an asset class — we invest in clearly positioned, future-proof locations.”
ACROSS: Within your two-pole strategy, where do you currently see the greatest development potential?
Müller: Beneath these two poles, there are certainly very attractive opportunities — depending on the market and catchment area. On the destination side, this may be a dominant shopping center or a prime high-street location in a major city.
On the convenience side, the spectrum ranges from supermarkets to grocery-anchored retail parks. Over the past five to six years, we have significantly adjusted our exposure to essential retail — that is, neighborhood supply. We see structural stability, high liquidity, and continued catch-up potential there. We will continue to expand this segment.
ACROSS: How do you decide in your portfolio review whether to buy, hold, develop, or sell? Has your holding period logic changed?
Müller: Strategy is easiest to implement at acquisition because we can selectively acquire assets that are already clearly positioned. Within the existing portfolio, decisions are more complex.
If we are not convinced that we can achieve a clear and sustainably viable positioning through investment or transformation, we consider an exit. Conversely, we continue to invest where we see potential.
In Poland, we expanded a strongly performing shopping center by around 2,700 square meters and integrated TK Maxx as a new anchor tenant to further strengthen its destination quality. In Cologne, we plan to develop the Köln Arcaden into a mixed-use scheme with additional office and residential components.
We hold locations long term if they are operationally strong and offer development potential. What matters is not the holding period itself but the perspective of the location and its performance contribution to our funds. Ultimately, location potential always determines the decision.
ACROSS: Where does the European retail real estate market currently stand in the cycle?
Müller: In my view, we are at the beginning of a recovery. Sentiment has improved noticeably since 2024. Retail had the particular characteristic that revaluation began earlier than in many other asset classes. As early as 2018/19, we saw structural value corrections driven by e-commerce growth and changing consumer behavior.
The interest rate shift in 2022 was a significant event, triggering another revaluation, further accelerated by the pandemic. While the challenging phase is not fully over at every location, the broad revaluation in retail has largely taken place. We are again seeing market evidence — for example, several large-volume shopping center transactions in the Czech Republic or initial yield compression in Spain.
“Revaluation in retail began earlier — which is why we are seeing earlier recovery as well.”
ACROSS: Retail recently accounted for a comparatively high share of commercial transaction volume. Is this a sustainable trend reversal?
Müller: It is at least a clear signal. Five or six years ago, many institutional investors almost avoided retail altogether. The asset class now accounts for significant market share, reflecting a shift in perception.
ACROSS: How do you differentiate geographically?
Müller: Very selectively and subsegment-specific. For shopping centers, we see Spain, Italy, and Poland as the most attractive markets. In retail parks, Germany, Austria, Spain, and Sweden are particularly compelling.
For high-street properties, we think less in terms of countries and more in terms of metropolitan areas. We focus on identifying the best location within each city, looking closely at cities such as Paris, Madrid, or Copenhagen. Our allocation is always tailored to market, location, and fund profile. There is no market in which we invest indiscriminately.
ACROSS: Recently, you stated strong interest in the Austrian market. What role does Austria play in your allocation strategy?
Müller: Austria is an extremely interesting market. We have had our own office in Vienna for around ten years and manage an Austrian retail fund there. In retail, we now hold more than 20 properties with an investment volume of around €500 million.
The focus is clearly on grocery and retail parks — our convenience pole. The market is manageable in size, but we aim to at least maintain our strong position and expand selectively when attractive opportunities arise.
ACROSS: How has banks’ risk perception toward retail changed?
Müller: It is highly location-specific. Core and core-plus properties with stable cash flows are financeable — typically up to around 60 percent loan-to-value. Transformation assets are significantly more difficult.
Banks clearly differentiate today based on operational quality, coverage ratios, and catchment area dynamics. The decisive factor is not the asset class but the performance of the individual property.
“It is not the asset class that matters — it is the operational strength of the individual asset.”
ACROSS: Was investors’ reluctance toward retail fundamentally justified?
Müller: Yes. In the 2000s, retail was almost self-running — rising rents, high transaction activity, strong chain expansion. With the rise of e-commerce, this changed structurally. By 2017/18, it was clear that we had reached a turning point.
Since then, we have seen clear polarization: very good locations — and those that no longer function structurally. Some cannot be revitalized as retail locations even with investment; in those cases, conversion is usually required.
Today, performance is much more transparent and measurable. With the right entry timing, attractive risk-return profiles can be achieved.
ACROSS: Many institutional investors are currently increasing exposure to grocery-anchored formats. Is this a temporary move toward safety — or a structural shift?
Müller: It is certainly no coincidence. When institutional investors review allocations today, they must decide carefully which segment to enter. Market momentum currently clearly favors grocery and neighborhood supply because underwriting is comparatively transparent. European grocery retailers’ revenue figures show long-term growth trends, providing greater predictability.
In addition, these are typically smaller, granular ticket sizes that are easily diversified and fungible. For many institutional investors, that is attractive because risk and cash flow structures are highly predictable.
This also aligns with our strategy. We continue to see structural stability and further expansion potential in essential retail.
ACROSS: Do you believe institutional capital will sustainably return to retail?
Müller: Yes, institutional capital will return — but selectively. Between 2017 and 2019, many markets saw heavy retail investment at ambitious prices. Then came structural rent adjustments, revenue declines, the pandemic, and significant valuation corrections.
In 2021 and 2022, many investors concluded that retail — apart from neighborhood supply — was no longer investable.
However, looking at time series data, the picture is more differentiated. We can clearly identify operationally robust assets. With disciplined entry timing and market expertise, above-average returns can currently be achieved.
“Europe still has too much retail space. The concentration will continue.”
ACROSS: What structural trends will shape the segment long term?
Müller: First, demographic development and labor shortages. Even top locations sometimes struggle to find staff to operate concepts locally.
Second, Europe still has too much retail space. There will continue to be concentration — either in prime locations that densify further or in regional shopping centers that may require downsizing.
Third, omnichannel and technological integration. Especially in fashion, hardly any retailer can operate successfully without a solid omnichannel strategy. Successful retailers seamlessly link online and offline. The better technological innovation and inventory systems integrate both, the more successful brick-and-mortar retail can be.
Fourth, energy efficiency. Brick-and-mortar retail is energy-intensive. Modern technical systems offer significant savings potential, directly impacting operating costs and margins. Under the right conditions, margins in physical retail can be more attractive than in pure online retail.
ACROSS: What role should retail play in a diversified real estate portfolio going forward?
Müller: Ten to fifteen years ago, retail — alongside office — was one of the dominant uses in many diversified portfolios, often accounting for 30 to 35 percent. From today’s perspective, that seems structurally overweight, as other asset classes — particularly logistics and residential — have developed more strongly.
Between 2018 and 2023, many investors reduced retail exposure to below 10 percent. Given the market disruptions at the time, that was understandable — but in my view also an overcorrection.
Retail — especially retail parks and dominant shopping centers — can deliver stable cash flow returns and contribute to portfolio stabilization. In contrast, traditional high-street assets often represent more of a value-change play with lower running cash flows.
Looking ahead, I consider a retail allocation of around 20 percent — potentially slightly above — to be appropriate, provided it is diversified across subsegments. That creates a balanced mix of income, risk, and diversification within an institutional portfolio.
