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The Gropius Passagen in Berlin
A panel at last week's Handelsimmobilienkongress in Berlin delivered a clear message for investors: capital is available for German retail real estate again, but only for those able to finance complexity and execute asset-level change. Moderated by Sandra Ludwig, Head of Retail Capital Markets EMEA at JLL, the discussion brought together Jörn Burghardt of GPEP, Olaf Ley of Eurofund Group and Sergi Capdevila of Pradera, which recently acquired Berlin's Gropius Passagen. Across different strategies and asset types, the conclusion was consistent. The market has reopened, but it is no longer forgiving.
Retail has regained attractiveness relative to other asset classes, particularly in the more defensive segments of the market. At the same time, decision-making remains cautious. Geopolitical volatility, interest rates above 4% on the 10-year Bund and the memory of the rapid repricing in 2021 and 2022 continue to weigh on investment committees. As Burghardt put it, the inability to forecast developments with confidence often leads investors to do nothing rather than risk doing the wrong thing.
Capital is back - but financing is the constraint
The capital currently active in German shopping centres is largely international and opportunistic rather than domestic institutional. German open-ended funds and Spezialfonds remain mostly absent, and there is little indication that this will change in the near term. More important than the origin of capital is its structure. Most value-add strategies rely on 60 to 70% leverage, making financing the decisive variable in whether transactions can proceed.
Burghardt described financing processes that now routinely extend over three to six months. Within that period, even modest changes in interest rates or lender appetite can destabilise a transaction. Older assets with ESG deficiencies face particular scrutiny, and securing leverage at the required levels has become materially more difficult. As a result, deals are not failing for lack of interest, but because the structure cannot be held together long enough to reach execution.
Banks, however, have not withdrawn from the sector. Ley was clear that in his experience lenders are still prepared to finance retail transactions, including shopping centres. The constraint lies elsewhere. Borrowers must demonstrate a credible track record in retail operations, either at company level or through individuals within the organisation. The willingness to lend is there, but expertise has become the primary filter.
The geopolitical environment is also beginning to affect transactions more directly. Ley pointed to operational complications arising from an Israeli lender affected by disruptions to flights in Tel Aviv, which has slowed processes in day-to-day financing. At the same time, subcontractors on an €80m development project are already requesting price increases linked to rising material costs. These are not theoretical risks. They feed directly into project budgets and can alter the economics of a deal while it is still being negotiated.
Returns are built, not assumed
If financing is the first constraint, return expectations are the second. Headline prime yields of 5.9% apply to a very limited number of top-tier assets, perhaps no more than a handful nationwide. In the broader market, transactions are occurring at yields between 7 and 8.5%, typically for assets that require operational or technical intervention. These are not passive income plays but situations that demand active management.
On returns, the panel was notably aligned. Burghardt was explicit that target IRRs of 12 to 14% in specialist retail are difficult to justify under current conditions. "Wenn man sich ehrlich in die Augen schaut, kann man das ganz klar sagen" — if you look each other honestly in the eye, you can say it clearly: achieving returns in the high teens generally requires yield compression that cannot be assumed. A consistent return of around 8%, delivered through disciplined asset management and realistic underwriting, is both achievable and defensible.
Capdevila approached the same issue from an operational perspective. The investment case must be driven by income growth rather than expectations of market repricing. Yield compression may provide upside, but it cannot be the foundation of the business plan. At Gropius Passagen, this translates into a phased capital expenditure programme over three to five years, beginning with safety-critical works and followed by targeted improvements. Not every asset requires a full repositioning, and in many cases such an approach would not be economically justified.
German institutional capital remains largely absent from shopping centres, and recent transactions suggest this is unlikely to change quickly. Where domestic investors are active, they tend to be private buyers pursuing specific opportunities rather than broad sector allocations. The result is a narrower and more specialised buyer universe, dominated by investors with flexible capital structures and the operational capability to execute complex business plans.
The market is moving, but selectively and on stricter terms. Capital is available, but only where it can be matched with credible execution. Returns are achievable, but only where they are built through asset management rather than assumed through market movements. German retail real estate is investable again, but only for those equipped to do the work.