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With the ongoing downturn in traditional retail, German landlords are increasingly pivoting towards diversified property utilisation to secure more sustainable rental income. This shift, highlighted by a new survey from Aengevelt Research, is a direct result of the changing dynamics of consumer behavior and retail demand.
Retail locations have traditionally been the linchpin of urban commercial income, but recent data signals a significant shift. According to Aengevelt's findings, "achievable rents for retail locations are falling across the board" as traditional anchors like department stores close and chain stores retreat from high streets. This trend is pronounced in Germany's major cities where, despite a post-pandemic recovery, the movement towards online shopping continues to erode traditional retail's market share.
"In 2023, prime retail rents in all Big Seven cities fell by an average of 14% in nominal terms compared to 2019," Aengevelt reports, with some cities like Berlin experiencing declines as steep as 26%. This downturn is not just confined to major metropolises but is also evident in smaller cities such as Leipzig and Dresden.
The managing director of the 115 year-old family firm, Dr. Wulff Aengevelt emphasises the critical nature of this shift: "Changing the mix of uses in retail properties is essential for securing income... Mixed use is the functioning key to the timely revitalisation of our cities when traditional retail is under pressure."
Cologne sees mismatch between pedestrian frequency and turnover
In nearby Cologne, the challenge of adapting to these new market realities is evident. The city has seen a disparity between high foot traffic and lagging sales. Manfred Janssen from local business agency Kölnbusiness highlights this issue: "Low vacancy rates and high footfall are often offset by falling sales, a shortage of skilled labor, and high financial burdens on traders."
In October and November last year, Kölnbusiness carried out a complete survey of ground floor uses and apparent vacancies in Cologne's city centre. Surveys were also carried out in the main shopping areas. With this amount of data, the business promoters want to create clarity about the actual state of Cologne's retail locations, but also look for suitable tools to stop or avert the supposed decline of bricks-and-mortar retail.
The response in Cologne has involved innovative uses of space to attract a diverse range of tenants and visitors. "People's preferences are changing, and so are our shopping streets," says Janssen. "Retail remains the core of a city center. However, innovative concepts involving catering, services, leisure, and culture are creating new points of attraction."
Peek & Cloppenburg store in Frankfurt
A good example is the transformation of Zeil 71-75 in Frankfurt (the well-known Peek & Cloppenburg shop on the main shopping street). The store exemplifies the strategic pivot towards creating spaces that integrate shopping with leisure, work, gastronomy, and education. This project aims to transform the property into a vibrant, multi-use hub that attracts people throughout the day, contributing to the dynamic revitalisation of the property and the surrounding neighborhood.
Dr. Kevin Meyer of JC Real Estate, an associate company of Peek & Cloppenburg, comments on the importance of this conversion: "In order to make city centers attractive again for all user groups, we need to invest in new, innovative spaces with new utilisation concepts."
Still, even as property owners are rethinking their space allocation, Dr. Aengevelt said a trend was already noticeable where "smaller, owner-managed retailers, catering, and healthcare providers are moving in." However, these sectors often pay lower rents compared to their retail predecessors, necessitating a strategic overhaul of rental approaches.
This shift toward mixed-use developments is seen as a crucial strategy for growth and sustainability in urban real estate. These developments meet the modern demands of urban dwellers for convenience and lifestyle options beyond traditional shopping, enhancing the utility and appeal of city centers, say the Aengevelt researchers.
As German retail real estate continues to navigate these turbulent times, the strategies implemented by landlords will play a crucial role in defining the future landscape of urban commercial real estate. By embracing mixed-use concepts and revitalizing urban spaces, property owners can stabilize and potentially increase their rental revenues, positioning themselves advantageously in a rapidly evolving market.
See also Germany's 2024 retail scene sees transformation in play.
