German retail rents continue to fall, especially in the Big 7 cities

There is plenty more evidence coming in about the effects of the COVID pandemic on German retail rents, particularly in the larger cities, despite nominal marginal increases in the third quarter.

A new study by the Institut der deutschen Wirtschaft (IW Cologne) shows the damage being done particularly in the big cities and their surrounding areas. Nationwide, the IW researchers still recorded a minimal increase in retail rents of 0.2 per cent on average in the third quarter compared to the same period last year. This compares to the first Corona crisis year of 2020, which had still seen quarterly increases of four per cent, according to the analysis.

In the seven largest German cities - Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf - the declines were particularly marked (minus 2.7%). However, there is also more room for downward movement here: While rents were recently between €8 and €11 per sqm on average across Germany, the top seven locations were about twice as expensive for retailers, at €20.

The IW observed falling rents in 17 of 30 so-called "district-free" cities ()i.e. autonomous, not haveing a "Landkreis"), including all seven metropolises. In Frankfurt, the economists even saw a decline of 9% in the third quarter. Duisburg, Essen, Wiesbaden, Kassel and Chemnitz also saw sharp reductions. In contrast, retail rents rose significantly in Magdeburg, Bochum and Mannheim.

Over an extended period since Q3 in 2018, rents have generally risen overall. The study's authors say that, "Taken together, this suggests that the current rent adjustment is in many cases a correction of strong supply price increases in the past year, especially in the top seven locations." Rents in Berlin, Frankfurt and Düsseldorf, for example, still climbed significantly in 2020. According to the IW, many owners ignored the difficult situation of the retail sector in the first year of the Corona crisis and tried to continue with the existing conditions.

For the study, the economists examined more than 153,000 rental advertisements and adjusted them for factors such as location and quality - including year of construction and furnishings. This was to prevent properties on the outskirts of the city, for example, from being compared with those in the centre.

The researchers are inconclusive about prospects for the new year, 2022. A further decline in rents is very possible, especially in the big cities, but so also is stagnation. Since more and more people are shopping online, rents for shops are under general structural pressure., they emphasise.

Most recently, the estate agents' association IVD had also reported on Corona consequences for retail rents, noting far greater declines for the first half of the year under review.

Current IVD figures also show that an average of one-fifth of the 6,000 association members have recorded an increasing vacancy rate since the beginning of the pandemic. Almost two-thirds even consider this to be a permanent problem, according to the data published in an article by "Der Spiegel" magazine.

In the most expensive areas, however, the vacancy rate has declined somewhat recently. According to the data, in February almost 14% of shops on Germany's "high streets", were empty. In September, it was only slightly more than 12%.

In its new study (Gewerbepreisspiegel 2021/22) published by IVD points to an average fall across the country's high street and shopping centres of at least 10% compared to a year ago. In the Big 7 cities - Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart and Düsseldorf - the fall is even bigger, at 13%. The smallest towns and cities got away more lightly, seeing rent reductions of between 1% and 5%.

The IVD figures from its commercial price index show that the vacancy rate of shops in 370 city centres surveyed averaged 20% in summer 2021- about a third more than at the beginning of the pandemic. In a survey, 77% of IVD members stated that the shop vacancy rate had increased within the past eight months. A majority (62%) said it sees this process as irreversible.