Retail investor GRR and international real estate consultancy Savills have co-operated on a major report and compilation of articles on the topics of sustainability and ESG as they affect the retail sector. The report also looks at how the effects of the COVID-19 pandemic have focussed trends. REFIRE tuned in to the recent presentation of the report.
Food retail has proven to be an anchor of stability in uncertain times, supplying consumers despite difficult circumstances, whilst food stores and retail parks guarantee robust investment returns. But there is increasing pressure on the retail sector in terms of compliance with sustainability and ESG (environmental, social & governance) criteria. Quite simply, convenience retail must become more sustainable in terms of the construction, operation and management of properties.
Martin Führlein, board member of the GRR Group explained that ESG is an opportunity for the convenience retail sector. “Sustainable growth is an essential factor for GRR. The report shows the opportunities of an ESG-based investment strategy for institutional investors. As an investment, sustainability-orientated convenience stores in the food retail segment offer a high degree of value stability.”
The real estate sector plays a key role in terms of climate objectives, including energy-efficient refurbishment and construction to comply with green building standards, focussing on reduced energy consumption and the use of renewable energy sources. This drives demand for ESG-compliant properties, which offer better long-term returns.
Karsten Nemecek, Managing Director at Savills said, “The pandemic has shown that convenience retail delivers stable rental incomes, even in times of crisis - typically on the basis of long-term lease contracts, which are popular with investors, resulting in falling yields and increasing competition between bidders. Convenience retail is increasingly sought-after by institutional investors, for whom sustainability has been a hot topic for some time. In short: supermarkets have become a Core product.”
The report includes an early-2021 survey of retailers into market development in the food retail sector. Almost all respondents (97%) intend to open new stores in the next 5 years and 82% intend to increase their total number of stores. The units will also increase in size. 69% of food retailers said they expect store areas to expand. The highest growth forecast is in the discounter segment, with standard sales areas increasing by 40% from 800 m² to 1,130 m².
Whilst digitalisation and the increase in online sales play a key role in other retails segments, well-informed consumers see less sense in ordering food online from an ecological viewpoint because of the requirement for transport and packaging, not to mention the lack of the shopping experience.
For the investors surveyed by GRR, ESG criteria are highly relevant in terms of investment decisions. 78% say the environmental aspect will affect their investment strategy going forward, whilst 72% view the social element as critical and 67% will focus on governance.
At the heart of ESG-compliance is the matter of building certification. What was previously seen as a cost driver is now a major decision factor: 55% of the respondents said that certification had been relevant to the acquisition process in the past but this increases to 83% when asked about the future. 67% now say they associate a certification with a reduction in operating costs, whilst 50% said they expect lower maintenance costs and 44% greater tenant satisfaction.
