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Thomas Beyerle of Catella (left), Patrick Brinker of Hauck Aufhäuser Lampe (center), and Falk Hermmann of Retaylor (right) /// credit: Rueckerconsult
Thomas Beyerle of Catella (left), Patrick Brinker of Hauck Aufhäuser Lampe (center), and Falk Hermmann of Retaylor (right) /// credit: Rueckerconsult

Retail real estate: increasing pressure to modernize

The German transaction market for retail space recorded a low transaction volume of around EUR 2.8 billion in the first half of 2023 – compared with around EUR 7.8 billion in 2022 as a whole. Overall, it can be seen that online retail is having a negative impact on the development of sales in stationary retail even after the Corona pandemic. However, stationary retail for everyday needs in particular, such as retail parks in residential areas with a high population density, is proving robust and benefiting from the new situation. These trends extend much further than just Germany, as similar patterns can be recognized on other European markets as well.

One reason for this is the increased use of home offices in the working world. For example, in March 2023, private spending in suburbs and residential areas with high home office use increased up to 30 percent relative to the pre-Corona comparative in 2019, as revealed at the online press conference “How Retail is Getting Fit for the Future” with Prof. Dr. Thomas Beyerle of Catella, Patrick Brinker, Head of Real Estate Investment Management at Hauck Aufhäuser Lampe, and Falk Herrmann, Managing Director at Retaylor.

Prof. Dr. Thomas Beyerle summarizes the situation on the rental market for retail properties: “Although there are initial signs of stabilization in new contract rents, they are at a low level and primarily in the small segment of high-priced retail in prime locations in the top locations. Many players also do not yet want to say goodbye to the rent levels of recent years, but this will be inevitable.”

Local supply properties offer high value-added potential

Two special funds of Hauck Aufhäuser Lampe Real Estate Investment Management (HAL REIM) are focused on local supply properties and food retail. The “H&A Food Retail Germany” is already fully invested. The fund, which is classified as Article 8 fund was launched in 2020 and has since acquired 20 properties for around 230 million euros. The average distribution yield is six percent p.a., which is above the targeted yield. The successor fund “H&A Lebensmitteleinzelhandel Deutschland 2” is currently in the investment phase. With this fund, HAL is pursuing a management-to-core strategy. Patrick Brinker, Head of Real Estate Investment Management at Hauck Aufhäuser Lampe comments: “Currently it is shopping season, there is a large buying offer with attractive yields. We are focusing on well-located properties, that have not been optimally managed in the past, and thus offer a high potential for value creation.”

Modernization pressure increases significantly

Falk Herrmann, Managing Director of the newly founded consulting and asset management company for retail revitalization and repositioning, Retaylor, explained the great efforts that are being made by owners and managers of retail properties. “The positive market trends of the past few years has meant that in many places, necessary modernization measures have failed to materialize. Rents have risen and the properties have yielded a stable cash flow and attractive returns. Now the retail real estate market is facing several challenges: Sustainability requirements, competition from the internet, and changing consumer preferences are creating considerable pressure to modernize. Added to this is the changed market environment. Financiers are much more restrictive in granting loans, and some financing deals are possibly bursting.”

So what needs to be done to put problematic retail parks or shopping centers back on the road to success? “The important thing is to analyze the potential,” says Falk Herrmann.

“For example, are there opportunities for redensification? Not always does the utilization of car parking spaces correspond to the original plans and there is space for other uses such as parcel stations, e-charging stations or extensions. Then the question arises whether the existing tenant structures complement each other or whether a different mix would be advisable. The distribution of space must also be scrutinized and, if necessary, mergers or subdivisions made. Particularly in the case of multi-story retail properties, functional offices, medical practices or public administration space, for example, are a good idea. administration, for example. With regard to the implementation of ESG measures, it should always be considered that they are both appropriate and in line with the investor’s return expectations. return expectations of the investor.”