Several factors are in place to make the German retail property market an attractive proposition for investors, according to recent research by Cordea Savills, the European property fund manager.
An upturn in the German economy and growing retail demand, together with restrictions on the existing and potential supply of modern retail property and increased interest in the sector from international investors, all support the case for optimism about the sector, says the report, entitled 'Investment in German retail property'.
Germany is the largest economy in Europe, with over 80 million residents, many of whom have low personal debt rates because of their reluctance to borrow during the economic slump over the last decade. As the German economy emerges from that recession, business and consumer confidence indicators all point to growth in retail sales.
Provision of modern retailing stock is much lower than the European Union average, however, not least because planning controls are so restrictive, which protects the existing supply. Furthermore, because much of the retail stock needs modernising following neglect from owners reluctant to invest in the recession years, there are now significant opportunities for expert property managers to develop certain properties and create modern facilities with a monopolistic value.
There are considerable regional variations in retail demand/supply imbalances and local variations can be wider still. In general, the greatest opportunities for investors lie in the 'Old Länder', the western and southern regions where 'modern' stock is comparatively outdated.
The Cordea Savills' research was based on a database of all the existing and planned shopping centers and retail parks in Germany. By using economic, demographic and property market indicators at a local level, Cordea Savills found that:
- purchasing power per capita is markedly higher in the south and west compared with the east
- paradoxically, shopping centre space per capita is significantly higher in the east than in the south and west
- many parts of the east will exhibit population decline and furthermore have ageing populations with lower propensities to spend
Andrew Allen, Head of Research and Strategy at Cordea Savills, commented, "The conditions for investing in German retail property are very favourable indeed. Retail vacancy rates are very low, yields are relatively high compared with those elsewhere in Europe and very long leases are available - anything up to 20 years and secured upon very strong financial covenants.
"Whilst there has already been significant inward yield shift in the sector overall, we believe that the growth prospects for the economy and retail sector will provide opportunities with strong rental growth, as properties are updated and reconfigured to meet demand."
Source: Cordea Savills