
Pressmaster/Envato
The German retail property investment market ended 2024 on a high, recording transaction volumes between €6.1 billion and €6.3 billion, up 28% from 2023. Major deals, including the KaDeWe in Berlin (€1 billion) and Munich’s Fünf Höfe (€750 million), drove this recovery, particularly in the fourth quarter, which saw a surge in food-anchored portfolios. Retail properties accounted for the third-largest commercial property segment after residential and logistics, according to CBRE.
High-profile sales in A cities like Berlin and Munich contributed significantly, with these two cities alone generating €2.8 billion in volume. Specialist retail, shopping centres, and high street properties led the way, reflecting a diversified investment appetite. Colliers noted that gross initial yields for food discount stores and local supply centres compressed to 5.4%-5.7% by year-end, with a ten to twenty basis-point decline during the year described as “quite realistic” by Ulf Buhlemann, Head of Retail Investment at Colliers.
Jan Schönherr of CBRE highlighted a growing interest in shopping centres from international value-add investors and family offices. The Pasing Arcaden deal in Munich, valued at €388 million, marked one of the largest shopping centre transactions in a decade, underscoring this renewed focus.
Pedestrian traffic rise in city centres not enough to offset closures
Pedestrian traffic in major city centres rose modestly by 1.5% in 2024, following a 2% increase in 2023, but this was insufficient to offset ongoing closures. According to Johannes Berentzen of retail consultants BBE, “Foot traffic alone doesn’t guarantee sales anymore. Consumers are increasingly inspired by physical stores but prefer to complete their purchases online.” This trend has led to a significant rise in “browsing without buying,” with flagship locations in larger cities struggling to convert foot traffic into revenue.
Smaller cities like Herne have demonstrated the power of experiential shopping. The ‘Cranger Weihnachtszauber’ mobile Christmas market - the largest such event in Europe, drew record visitors and highlighted the potential of events to boost retail performance. Dr. Wulff Aengevelt of Aengevelt Immobilien noted, “Successful retail spaces now integrate cultural and sensory experiences to provide what online shopping cannot.”
In larger cities such as Berlin and Munich, high rents continue to pose barriers for mid-market retailers. These cities’ reliance on flagship retail projects, such as the KaDeWe deal, primarily attracts institutional investors and luxury consumers, potentially leaving gaps in offerings for everyday shoppers. Addressing this imbalance will be key to long-term sustainability in urban retail.
Retailers are adapting their strategies to meet evolving consumer expectations. Ikea, Aldi, and Decathlon have embraced smaller, centrally located stores aimed at convenience and accessibility. Meanwhile, high street retailers are exploring integrations with gastronomy, leisure, and cultural activities to create multifunctional spaces. “Simply selling products is no longer enough,” Berentzen observed, echoing the views of Dr. Aengevelt. “Retailers must now create experiences that resonate with local audiences.”
Festive events and Sunday shopping days have demonstrated how cities can stimulate both foot traffic and sales. For instance, Düsseldorf’s Sunday openings during the Christmas season, coupled with festive markets, propelled footfall indices beyond pre-pandemic levels. Christoph Scharf of BNP Paribas emphasized, “Event-driven strategies not only drive foot traffic but also enhance the appeal of retail investment assets.”
Consumers increasingly drawn to new online platforms
The retail sector faces enduring hurdles. Inflation-adjusted sales fell 0.9% in late 2024, as price-sensitive consumers turned to online platforms like Temu and Shein. This shift highlights a growing divide between physical retail and e-commerce. Berentzen pointed out, “To compete with online platforms, physical retail must leverage unique experiences that can’t be digitized.”
Additionally, high rents in urban centres remain a critical challenge, limiting opportunities for smaller businesses and new entrants. The German Retail Association (HDE) has called for measures including tax incentives and special depreciation programmes to support struggling city centre properties. Dr. Aengevelt echoed these sentiments, urging landlords to adopt flexible rental models to encourage occupancy.
Yield stability, combined with a robust supply pipeline, positions the retail property market for growth in 2025. Retail parks and food-anchored assets are particularly well-placed, with yields already experiencing slight compression. Christoph Scharf commented, “The broad demand structure in retail—spanning shopping centres, food retail, and specialist stores—is a key competitive advantage.”
As consumer preferences gradually change, the interplay between experiential retail and investment potential becomes even more critical. Successful retail destinations will harness the power of unique experiences to attract visitors and drive spending, bridging the gap between physical and online retail. Smaller cities and mid-sized urban centres, with their adaptability and lower costs, are poised to become innovation hubs for experiential retail concepts.
Dr. Wulff Aengevelt concluded, “The future of city centres lies in their transformation into vibrant hubs where retail, leisure, and culture converge. Investors and retailers who embrace this vision will thrive, while those that fail to adapt risk irrelevance in a competitive and shifting market.”