Food-anchored store deals shine amidst gloomy retail background

With classical retail still very much in the doldrums, the last month has been characterised by a flurry of deals within the German grocery-anchored retail sector, with many of the sector's most active players featuring in at least one deal. The Fachmarkzentrum sub-category of retail has been one of the star perfomers throughout the pandemic, with overall retail turnover in grocery-anchored retail seeing chunky increases across the country.

Property adviser CBRE published figures on the first quarter, highlighting the ongoing woes of classical retail - investment overall in German retail property fell to €1.9bn in the first quarter, a 59% year-on-year decline.

While the brick-and-mortar retail sector is struggling badly with the repeated lockdowns and the inexorable rise of online retail, grocery retailing has increasingly been viewed by investors as an infrastructural pillar.

CBRE Germany's co-head of retail investment Jan Schönherr said “Investor appetite for food markets and food-anchored retail properties is particularly strong as these properties are little affected by the restrictions imposed by the coronavirus. For shopping centres, however, investors have adopted a wait-and-see position until rents have settled down. 

The figures show that retail warehouses, food markets, retail parks and neighbourhood centres accounted for 44% of investment activity in the quarter; high street retail, 32%, and shopping centres, 7%.

Yields have fallen in some segments. Food market prime yields have fallen from 5.2% a year ago to 4.50% at the end of the first quarter, while DIY store yields have dropped from 5.2% to 5.1%. The prime yield for retail parks was stable at 4.15%.

Schönherr said, “As the year progresses, the food market segment will increasingly close the yield gap with other asset classes as ever more investors are reviewing their risk evaluation of these properties on the back of strong performance and are comparing them with good logistics properties.” 

The firm said that investment volumes will also continue to be determined both by supply shortage and by investors waiting to see how the pandemic situation develops.

Several deals have recently been done in the food sector. x+bricks, with ambitious plans to be a leader in the grocery-anchored retail market, bought a total of 17 new assets in two separated deals for a total of €55m. The properties are mostly let to retailers Netto and Kaufland, and have a weighted average lease term of 12.6 years. The deals bring x+bricks' GLA to over 500,000 sqm across more than 200 properties, and portfolio value to over €1bn.

DIR Deutsche Investment Retail added the Rödertalpark retailwarehouse park in Grossröhrsdorf, in the Saxony region of Germany, for its latest separate asset pool, Deutsche Investment – Food Retail I. The fund was launched only last year and has already bought more than €60m of assets, with exclusivity on currently €65m more.

Anchor tenants in the 15,500 sqm property included Kaufland, Aldi Nord, and DIY store Hagebau. The seller was Berlin-based Pemper Stoler Grundbesitz. DIR's CEO Susanne Klaussner explained the thinking behind this deal: 

"We intentionally chose to include retail warehouse parks in rural areas on the periphery of major conurbations or middle-order centres among the group of targeted investment assets for our separate asset pool. What matters to us is that such locations should have far-reaching appeal within their regions. With a tenant mix that is resilient vis-à-vis the online competition, Rödertalpark has evolved into a very important location within the region."

Up in the university city of Frankfurt/Oder, on the German-Polish border, listed company Deutsche Konsum REIT-AG (DKR) bought the prominent Spitzkrug Multi Center (SMC) from a Luxembourg-based investment company advised by Alteris Capital Partners and brokered by Frankfurt-based Waterway Investments. 

The very central complex was was built in 1994 and extensively revitalized in 2018. It comprises a total lettable area of around 25,000 sqm and has an annualized annual rent of currently around [€3.5 million with a WALT of around 7.5 years and a vacancy rate of currently 7%. The main tenants are Kaufland, Rossmann and Dänisches Bettenlager.

Deutsche Konsum REIT-AG said it refinancing the SMC with a German mortgage bank at a rate of less than 1% for a five-year term fixed.

This latest deal brings DKR's portfolio to over 173 properties with a total GLA of more than 1m sqm and a value of about €920m. Annual rental income is €73m, and FFO is expected to be between €47m and €51m.

Another player raising its involvement in the grocery-anchored retail sector is FCR Immobilien, which released figures recently showing that it held its EBT figure at €11.5m, about the same as in 2019, but with an improved operating cashflow of €5m. Last year the company increased its holdings to €315m from €299m the year before, of which about €268m was in retail parks, convenience and drugstores. It says it plans a further €160m of new investment this year.

Also entering the sector is Dortmund fund manager Dr. Peters with its new fund Immobilienportfolio Deutschland I. The blind-pool fund is aimed at private investors with an initial equity target of €50m and a yield of 4%. It will run till end-2033 and is open for a minimum investment of €5,000. It will focus on grocery-anchored retail in German B- and C-locations. A Rewe store in North Rhine-Westphalia is the pool's first acquisition. Dr. Peters was founded in 1975 and has already initiated 54 funds in the hotel, healthcare and retail sectors, but this is the company's first blind-pool fund.

Separately, and with the reduction of carbon footprints very much on companies' minds, Greenman OPEN, the Irish-owned largest food-focused fund in Germany committed recently to having its portfolio climate-neutral by 2021. Additionally, it will only buy climate-neutral properties up to 2035, and is setting aside at least 1.21% annually in support of its ESG compliance. That will amount to at least €5.75m this year, according to CEO Johnnie Wilkinson. Greenman OPEN is categorised as a Light-Green fund with Article 8 certification, according to the EU's new categories. The fund's portfolio consists of 72 grocery-anchored properties in Germany, with a current value of just under €900m.