Retail real estate 2020 – Owners must become more flexible
Roman Zwolinski, Sales Team Leader at Lührmann Munich says, ‘Owners need courage to be flexible’.
A gloomy future is regularly predicted for the stationary retail trade, insolvency reports are almost the order of the day in the sector and department stores are struggling. None of this is new. Even more than ten years ago, the future of retail did not look bright to say the least. The supposed culprits are quickly found: online retail, declining visitor numbers and fast fashion. Some brands and retailers suffered badly from these three issues in 2019. However, retailers have often shown the courage to adapt, which is exactly what has been happening in recent years. Now, for the first time, owners are also in demand.
For the coming year, Roman Zwolinski, Sales Team Leader at Lührmann in Munich, sees a clear direction for inner-city retail: ‘Don't be afraid to rent’. Retail property owners will have to become bolder and more flexible in order to continue to generate good to very good returns as well as income in the retail high street asset class.
‘Real estate is something you have to deal with’
The retail real estate market has evolved into a rental market. Retailers set the tone and often have a good chance to enforce their demands. ‘Owners need the courage to be flexible’, Zwolinski continued. This would be appropriate in many places for lease terms and expansion ideas. Furthermore, it could be very promising to give new, young concepts a chance. ‘Real estate is something you have to deal with’, he advises. This also means that leases do not always have to run for ten years. Five is the new ten, you might say. However, some dealers would like to reduce fixed terms to just three years. Meanwhile, new forms of use, such as serviced apartments, hotels and logistics, are finding their way into prime locations.
‘In well-functioning German cities, there are no vacancies in prime locations’, says Zwolinski, referring to Munich, Hamburg and Düsseldorf as well as Münster, Ulm and Rostock. ‘There won't be vacancies there next year either if the owners are flexible. You just have to dare – and also sometimes accept that a lease may no longer be achievable’.
Lack of integration of sales channels
Despite all the scare stories and prophecies of doom, the retail sector in Germany has shown stable development in recent years. ‘Although many retailers have shown themselves to be significantly less expansive than before, we cannot, however, speak of a crisis from our point of view’, says Zwolinski. The reasons for the restrained expansion are often obvious; a lack of integration of the sales channels and the rents that have risen to record levels. In Munich, for example, top rents for store premises between 80 and 120 square metres have risen by 35.7 percent in the past ten years. In Düsseldorf (+28.3%), Berlin (+13%) and Hamburg (+13.3%), the increases are smaller but still significant. Yet for years, retail rents were not the only thing going ‘up’; this was also the case for purchase price factors for investments in retail properties. Increases of almost 120 percent in ten years (2009-2018: Berlin / Kurfürstendamm / Tauentzienstraße + 122. 3 %, Düsseldorf + 82 %, Hamburg +30.9 %, Munich + 58.1 %) were recorded. If rents stagnate or fall, purchase prices also behave in the same way. After all, the return on these investments is measured directly by the achievable rent.
‘The value of a retail property has to be viewed in a more differentiated way today than ten years ago’, says Zwolinski, who has been active in the real estate industry since 2007. ‘National as well as international retailers and investors not only look very closely at the location of the property, they also check the layout of the space and the structural quality’. Today, in addition to the short- to medium-term return on investment, there is also the issue of third-party use.
Location does not replace expertise
One investor principle is: the lower the risk, the lower the return. ‘The time when buying and selling or renting and leasing in prime locations was based solely on price is over’, Zwolinski reports. ‘Just because a property is in the best location doesn't make it a building you can sell or rent without expertise. Looking at the development over the past 20 years, it becomes clear: retail properties in prime locations are the most stable asset class’. Stationary retail in city centres will always exist, the only question is on what space and under what conditions.
We connect potential – as Germany’s real estate specialists for prime locations. There is a perfect location for every brand, every tenant and every project. Lührmann Germany, headed by Managing Directors Achim Weitkamp, Mario Hampel and Michael Backhove, operates from six locations. Berlin, Düsseldorf, Frankfurt, Hamburg, Munich and Osnabrück form the optimal network to consolidate our expertise in the business areas of Retail, Office, Hotel & Hospitality, City Investment and Big Box Retail for you. This enables us to reach all locations in German metropolitan regions within a very short time. And our excellent knowledge of properties, people and markets, combined with a passion for the perfect deal, provide the conditions for a perfect match. And this has been the case since 1992.