Gastronomes and organic shops are pushing into the city

IZ (Immobilien Zeitung) dated 08.08.2019

The wave of closures in fashion retailing continues. In addition to the discounters, the vacant space in the city centres is being taken over primarily by restaurants and organic supermarkets. These, however, are more stingy when it comes to rent and are sometimes content with the B-location.

The news of fashion retail shop closures was a constant topic in the first half of 2019. This is now reflected in the city centre rental statistics. The two most important tenant groups in Germany – fashion and gastronomy – are on an equal footing for the first time. While BNP Paribas Real Estate (BNPPRE) still gives textiles a market share of 24% in the middle of the year, TLL only achieves a space turnover of 23% for fashion retailers in the first half of the year. Both real estate service providers agree that food businesses are now ahead with a 25% market share, although JLL also includes food retailers.

Like the restaurateurs, the food retailers are on average significantly more rent sensitive than the fashion retailers. Taking into account space outside the city centres, average rents in the food retail sector throughout Germany have actually fallen since 2018. Depending on the year in which they were rented, they were between just 8.22 euros per square metre and 11.25 euros per square metre, according to the 2019 trend report on food retailing by the valuation company DIWG valuation, which is being published for the fourth time this year. However, if the period from 2000 to 2018 is considered, there is still a slightly positive trend overall. The trend towards more total sales space in food retailing remains intact, while the number of sales outlets is declining. Between 2009 and 2018, the number of food retail outlets fell by about 7%, while the sales area of the segment increased by about 8.7%.

The strong sales and branch growth of the organic supermarkets continues to be noticeable among food retailers. They are happy to take over areas that have become too small for food discounters like Aldi, Lidl & Co. These are stores with a typical size of 600 m² to 800 m². The landlords should be happy about this: organic supermarkets have become much more important as the next tenants of former discounters and also pay rents that are at or usually even above the level of food discounters,” says the DIWG trend report.

Taken together, however, the change in the tenant structure away from fashion and towards restaurants and organic markets is leading to falling top rents in many city centres. In a five-year review, TLL calculated a minus of 9% for locations below 100,000 inhabitants and a drop of 8% in cities with between 100,000 and 250,000 inhabitants. Even in large cities with up to 500,000 inhabitants, top rents fell by 6%, only the metropolitan areas recorded a small increase of 1%. These A-cities or “Big 10″ of retail locations include BNPPRE and JLL in the retail sector not only the seven usual suspects – i.e. Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart – but also Hanover, Leipzig and Nuremberg.

BNPPRE estimates the total German turnover with inner-city retail space from January to June 2019 at around 300,000 m², JLL calculated 284,250 m². In the first half of 2019, the brokerage house counted around 200 lettings or openings in inner-city locations of A-cities, which added up to a total letting turnover of almost 80,000 m². In the same period of the previous year, there had been noticeably more activity in A-city locations: At that time a take-up of 90,000 m² was registered. According to the BNPPRE, a considerable proportion of the current letting activity in German city centre locations can be attributed to the so-called B-cities. These include many student cities such as Münster, Würzburg and Heidelberg. The explanation: system gastronomes, supermarkets and discounters see students as a growing target group and want to be as close as possible to the consumer – and that means: in city centre locations.