Jürgen Kreutz, CEO, IPH Transact GmbH
Germany's macroeconomic picture offers a mixed bag: As Germany’s independent Council of Economic Experts (Sachverständigenrat) pointed out in its spring report: U.S. President Donald Trump's tariff policies have been putting global economic growth at risk while the fiscal package set up by the new government will strengthen military defence capabilities, modernise public infrastructure, support decarbonisation and stimulate the German economy as a whole.
Against this backdrop Germany’s retail real estate sector is proving its resilience. Consumer confidence remains cautious amid elevated energy costs and geopolitical uncertainty, however the labor market stays robust. This stability in employment underpins a steady base of consumer demand even as many households tighten spending. Crucially, Germany’s decentralized economic structure – with dozens of mid-sized cities driving regional economies – provides a broad, resilient retail landscape. This geographic diversity spreads risk and opportunity across the country, helping the retail market absorb external shocks. Indeed, retail sales have held steady: the sector saw about 657.5 billion euros in turnover in 2024. Forecasts suggest modest growth to more than 700 billion euros by 2028.
Polarisation in Formats and Locations
Beneath this broad picture of overall stability, a polarisation is accelerating within German retail – across both retail formats and locations. Consumer demand is diverging: at one end, the luxury and discount segments are performing well, while the mid-market retailers are struggling. Even though affluent consumers are still spending on luxury items, shoppers have become more selective and price-conscious, which has benefited discounters. Meanwhile, essential retail versus discretionary retail show stark contrasts. Fast-moving consumer goods (FMCG) retailers remain robust anchors of physical retail. Despite e-commerce gains, roughly 84% of food and daily-needs sales are still expected to occur in physical stores through 2028. Supermarkets and new convenience formats continue to expand, leveraging their role as frequent footfall drivers and core community infrastructure. By contrast, fashion and other non-food categories are under pressure. Fashion apparel – traditionally the backbone of high streets and shopping centers – faces an online penetration projected to reach ~49% by 2028. This has led to notable store closures and vacancies in many inner cities and malls.
Location dynamics are equally polarized. Germany’s major metropolitan areas, top shopping destinations and strong regional centers continue to attract retailers and shoppers, whereas many smaller towns and secondary locations see weakening demand. Prime rents have remained stable or even risen slightly in the very best pitches. In contrast, B- and C-tier cities without special economic drivers, such as, for example a high percentage of student population, are struggling. On average, rents in 1A retail locations across German cities fell ~14% from 2019 to 2024, but this average masks the gap between winners and losers. Top pedestrian zones in affluent or tourist-rich cities have preserved rents or seen growth, while weaker high streets have suffered rent declines of 30–40%. The result is a shrinking prime retail pitch in many towns – retail activity is concentrating into the best locations, while peripheral streets lose relevance and sometimes transition out of retail use altogether. This format and location polarisation means investors must be highly selective.
Investment Market Trends: Transactions, Yields and Spreads
After a turbulent few years, Germany’s retail investment market showed signs of rebound in late 2024. Total retail real estate transaction volume for 2024 reached approximately €6.1 billion, about a 28% increase on the prior year’s level according to CBRE. This uptick, albeit from a low base, reflects returning investor interest, particularly in “core plus” assets. High street retail properties accounted for an outsized share of deal activity – by some measures nearly half of volume – as private investors and family offices seized opportunities in prime city centers during the market dip. Notably, a few large single-asset transactions boosted the annual total, illustrating that capital is available for marquee opportunities.
Early 2025 data show a mixed picture so far. The first quarter of 2025 saw roughly €1.3 billion in retail property transactions, which is about 14% below the same period a year ago. This somewhat slower start is partly due to prolonged deal negotiations from late 2024, but brokers report a well-filled pipeline of transactions in progress across all risk profiles. In other words, investor interest – domestic and international – remains active, even if closing deals takes longer amid cautious underwriting. In fact, market observers note a renewed appetite for shopping centers in Germany among both national and cross-border investors.
According to IPH research, across 2024 prime net initial yields ranged roughly from 4.3% for core high-street assets up to about 5.8% for shopping centers with repositioning needs, with grocery-anchored retail parks in the middle around 5.0%. Most segments saw little movement in yields compared to a year earlier, suggesting a general market stabilization – the major change is the internal re-pricing between segments. In short, investors are pricing in higher risk for secondary retail income streams, while aggressively competing for prime locations or resilient assets.
Selective Opportunities in the German Retail Market
Amid these developments, selective investment opportunities are emerging for investors with the right expertise and strategy. Germany’s retail polarisation is creating clear “winners” that offer compelling prospects. Among these are prime urban assets and repositioning plays: Well-located inner-city retail properties remain highly sought after. Such assets have repriced to more reasonable levels, presenting a window of opportunity for investors to secure prime high-street exposure with improved yield profiles. Moreover, properties that are underperforming but well-situated (for example, an outdated shopping mall or vacant department store in a city center) offer value-add potential through repositioning. With consumer habits evolving, the best use for some large retail sites is now a mixed-use redevelopment. Investors willing to undertake redevelopment can transform these assets into vibrant mixed-use destinations – integrating retail with other uses like residential, office space, hotels, healthcare, education, or entertainment. Such repositionings not only address oversupply of retail space but also tap into local demand for other functions (e.g. downtown housing or flexible office space). The possibilities are diverse, and importantly, Germany’s strict planning regime means brand-new retail development is limited, favoring those who reinvent existing sites.
For investors with patient capital, acquiring a distressed retail asset in a good location and executing a creative repositioning can yield significant long-term upside. According to IPH analysis, roughly 40% of Germany’s shopping centers are under high repositioning pressure – many lack long-term tenants or a current concept – but these same assets hold great potential for redevelopment into mixed-use or otherwise renewed concepts. Value-add oriented investors with redevelopment expertise can thus find opportunities to buy at attractive prices and reimagine these centers for the next cycle.
About the Author
Jürgen Kreutz is the CEO of IPH Transact GmbH.