ACROSS: Ms. Hager, how relevant is the issue of revitalization for the retail real estate sector in Germany?
CHRISTINE HAGER: The issue has become more and more important. However, that is not only true for Germany. The retail trade is undergoing rapid change. The biggest drivers are digitization and urbanization. They have brought about massive changes in the way customers shop.
We have to react to these developments and rethink the retail trade. Therefore, the revitalization of existing real estate is a central and indispensable component of value-enhancing real estate management these days. That fact is particularly true against the backdrop of the coronavirus crisis, as it has resulted in additional changes in user behavior as well as in expectations of retail locations, for example, in terms of service.
The future will be all about technology-based convenience. In my opinion, there will be no going back. Our main task now is to align retail locations, specifically city centers and shopping centers, with the “new normal”.
ACROSS: What does Shopping 4.0 have to offer, and where should revitalizations be carried out today?
HAGER: Retail locations are attractive when they not only combine shopping, gastronomy, and entertainment in a customer- and service-oriented manner, but also integrate uses such as offices, hotels, and logistics. In this respect, they are transformed into places for modern living and working.It is all about the overall experience. Sustainability, however, will also play a greater role in the future, both with regard to the products offered and the properties themselves.
In addition to the pressure to meet consumer expectations, increasing regulatory pressure is also on the rise. As a result of political objectives, for example, in the wake of the European Green Deal, topics such as the energy consumption and CO2 consumption of retail properties have become even more important for owners and operators. Numerous retail locations have ceased to meet current standards in terms of both their product and service offerings as well as their ecological balance.
In order to ensure that they are prepared for the future, comprehensive revitalization measures are necessary in many places. Digital services must be incorporated into these measures, because that is precisely the area in which there is an enormous need for improvement. The creation of proximity to the customer is also crucial – not in terms of accessibility, but in terms of connectivity. It is imperative that centers interact with their local communities.
ACROSS: What roles do hygiene measures play, and how are they taken into account?
HAGER: Although footfall is gradually recovering, supply-related purchases still dominate at present. That is primarily due to the fear of infection on the part of many consumers. At our shopping centers, we counter such fears via the implementation of comprehensive security and hygiene concepts. Due to their broad shopping arcades, shopping centers are generally very well equipped to easily maintain the minimum distance of 1.50 meters currently prescribed in Germany. Free parking spaces are also advantageous, as customers do not necessarily have to use public transport to reach the center, nor do center employees.
In my opinion, such aspects will become increasingly important in the development of refurbishment concepts, with regard to hygiene concepts as well, whether at the centers themselves, in the gastronomy areas, or within connected or integrated fitness facilities.
ACROSS: What does the optimal implementation of a refurbishment look like?
HAGER: What the past few months have shown us once again, and quite clearly, is how important it is to plan ahead when it comes to refurbishments. Risk assessments and planning statuses have to be flexible and adaptable. It is crucial that an individual concept is developed for each location. Imposing a standard solution makes little sense and would fail to satisfy the needs and expectations of tenants and customers alike.
The selection of new tenants and brands always depends on the location. Their multi-channel capability is what is most important. In the future, shopping will be just one option among many for visitors.
If we succeed in integrating the major megatrends, such as sustainability, health, and education, into the further development of locations, the centers of the future will evolve into lifestyle hubs. They will become places where people meet, work, shop, and simply enjoy living.
ACROSS: To what extent has the Covid-19 crisis impacted the relevance of this issue?
HAGER: The Covid-19 pandemic has given online shopping an enormous boost. Retailers that were pursuing a multi-channel strategy before the crisis had a clear advantage during the lockdown.
Operating via only one channel is by no means a strategy for the future. We need to work towards creating thriving city centers with prosperous retail sectors that attract and serve their customers, using all available channels to the same extent. Without an intelligent digital strategy, none of that will be possible – neither on shopping streets nor at centers.
At the same time, the brick-and-mortar offering must be expanded to include digital features and services on site. That is the only way in which we can create marketplaces that offer distinctive experiences and a high quality of stay, which will continue to be well received long after the crisis has ended.
That is a task for investors, operators, and tenants alike. However, the political arena must also be called upon in the same way: Greater equality of opportunity between online and brick-and-mortar retail must be ensured.
ACROSS: How can the inequality of opportunity be remedied?
HAGER: What is needed, above all, is de-regulation. An important starting point would involve making store opening hours more flexible. Online retail is available around the clock, which represents a clear imbalance. More flexible adjustments in building law are also necessary to accommodate changes in use and product range.
Time is a crucial factor in this regard: The necessary building permits must be obtained quickly and without any complications. In the midst of the present situation, in particular, long approval processes could result in the threat of additional vacancies. Once customers have moved on, whether to the Internet or to a competitor’s site, getting them back will be difficult. It is here that politicians are called upon to make improvements as quickly as possible to ensure that we can immediately take advantage of any opportunities that may arise. A period of three months from the date of application until approval would be ideal.
ACROSS: What experts does redos work with regarding revitalization?
HAGER: We have been working closely with HLG, a project developer from Münster, for approximately 10 years. During the course of our partnership, we have jointly implemented several major revitalization projects, such as the modernization of our “Christie” portfolio.
We have repositioned and converted three of the four hybrid centers in the Berlin and Dresden metropolitan areas, in their respective catchment areas, and have expanded the sector and tenant mix. We are also working together to revitalize the Rhein-Ruhr Zentrum in Mülheim an der Ruhr, where we are going to set new standards. The project is even more complex than our hybrid center portfolio.
After all, the Rhein-Ruhr Zentrum is one of the largest shopping centers in Germany, located in the densely populated Rhine-Ruhr area and comprising 140,000 sq m of leasable office and retail space. The knowledge that we share with HLG, our well-established teams, and the trust that has grown over the years are the best prerequisites for successfully managing a project of this magnitude.
ACROSS: What is the current status of the reconstruction of the Rhein-Ruhr Zentrum?
HAGER: We are delighted that department store Galeria Karstadt Kaufhof has just extended its leasing contract as anchor tenant at Rhein-Ruhr Zentrum. This is an important milestone for our planned revitalization project since we plan – for the first time in history – the joint development and reposition of the Rhein-Ruhr Zentrum shopping center, the integrated Karstadt Arkaden and the former office tower on the on the property with a total rental space of around 140,000 sq m.
With the now prolonged contract with Galeria Karstadt Kaufhof, we have the commitment of an important partner to make the location fit for the future. Through additional uses such as office, hotel or logistics, as well as a focus on expanding digital services, we want to develop the location into a place for modern living and working.
Even though we have to accept some delays due to the Covid-19 pandemic, we are still working on preparing everything for the start of the rebuilding phase. We have used the past months to further optimize selected details of the concept, for example. This has also resulted in a number of new ideas and approaches.
We are confident that we will be able to implement further preparatory measures soon and look forward to receiving the building permit for the center reconstruction as the next big milestone.