GfK GeoMarketing releases a portrait of Germany's promising and sustainable asset classes. Author Manual Jahn identifies factory outlet center (FOC) and neighborhood center portfolios as attractive investment alternatives to the popular but expensive shopping centers.
Top-class retail real estate - looking behind the facade
GfK real estate expert Manual Jahn notes the palpable anxiety that has characterized the investment market since the onset of the financial and real estate crisis. Prior to the crisis, even premium-class retail real estate objects were often included in portfolios of questionable quality and then sold at inflated prices, leading to massive and even existential problems among banks and investors.
Jahn recommends evaluating prospective investments critically and from a variety of angles. It's vital to carefully weigh the potential return on real estate investments against the risks, such as high development, operating and management costs. However, Jahn still sees positive development opportunities for shopping centers, particularly in Germany: "Despite the current economic crisis, well-functioning shopping centers can be secure, sustainable investments." He also warns that "most investors are looking for core objects, which has led to scarcity in the premium market. Product offering and demand determine the price, and fears of a 'real estate bubble effect' are not unwarranted."
According to Jahn, sustainable success requires quality conditions with regard to layout, tenant mix, management, etc: "Only real estate expertise can illuminate whether a shopping center will enjoy long-term success and reliable returns. Shopping center investments are risky without a thorough due diligence assessment of these criteria."
Quality at a bargain price - FOCs coming to Germany
Jahn emphasizes that beyond the mainstream there are promising investment alternatives, particularly FOCs. Compared to the rest of Europe, Germany lags behind in terms of the number and sales area provision of factory outlet centers. "At the moment there really isn't a market for FOCs in Germany," explains Jahn, citing as a cause the formerly restrictive regulations governing large-area retail in Germany's federal states.
Despite this current lack, Germany provides excellent conditions for FOC development. Germany has a purchasing power index of 170.1, which places it well above the European average (100). As Western Europe's most populous country, Germany also offers enormous customer potential with more than 80 million inhabitants. Jahn also points to Germans' desire to acquire fashion and brand-name products as inexpensively as possible as an additional positive: "These factors suggest a promising future for the establishment of FOCs in Germany."
The expert expects Germany's FOC market to catch up given the high degree of market saturation in FOC markets in neighboring countries. Germany's recent relaxing of its planning permission policies also plays a role here. "The high number of planned FOCs in Germany is a good indicator that the FOC market is in ascendency. This development should provide lucrative investment opportunities even in the short-term, with the FOC emerging as a new and promising asset class. However, it's important to secure partnerships early, as investors will move quickly on these opportunities."
Manuel Jahn emphasizes that despite these very favorable conditions with regard to demand, it's essential to evaluate FOC ventures according to certain key real estate- and location-specific factors.
"FOCs must meet the same quality standards as shopping centers with regard to product offering, conception and management," explains Jahn. "It's risky to disregard these criteria when assessing factory outlet center portfolios. Factory outlet centers are and will remain a specialized form of real estate that requires professional know-how."
Unflashy but reliable investment options
Neighborhood centers constitute another attractive investment alternative beyond the mainstream,