• Transaction volume of €5.4 billion – 43 percent below the previous year’s level
• Prime yields climb in a range of 0.4 to 1.0 percentage points in the last twelve months, depending on the segment
• Properties from the group of retail warehouses and food markets, along with retail parks, capture 59 percent of the transaction volume

The German retail property market recorded an investment volume of €5.4 billion in 2023. Compared with 2022, this marks a decline of 43 percent. The Top 7 cities accounted for 33 percent of the transaction volume, eight percent more than in 2022. This is the conclusion drawn in a current analysis prepared by the global commercial real estate services company CBRE.

The recently resumed decline in financing interest and more moderate yields generated by fixed-income securities enable greater planning reliability and make investing in real estate more attractive.

Investors focusing on retail warehouses

The lion’s share in the transaction activity was once again taken by properties from the retail warehouse and food market segment, including neighborhood centers and retail parks. These properties accounted for 59 percent of the investment volume, 11 percentage points more than in 2022. In terms of its popularity with investors, this type of retail property therefore ranked around the level of 2021 when a share of 60 percent represented the best figure ever achieved. High street properties were also able to increase their share, which was illustrated even more clearly in a year-on-year comparison: from 15 percent to 31 percent, marking the highest percentage share since 2018. The acquisition of stakes in various trophy properties, such as KaDeWe, the MYND & Galeria Weltstadthaus complex or eight stores of the Signa Prime Selection, contributed to this high proportion. By contrast, shopping centers played a negligible role in 2023. Their share in the generally lower transaction volume came in at only just under five percent whereas this figure still stood at 29 percent in 2022 due to various special effects, as well as a few flagship transactions. “While there was virtually no momentum on the market for shopping centers in 2023, we are expecting a much greater movement on the transaction market for this kind of property in 2024,” Schönherr says.

In 2023, international investors upped their share in the transaction market considerably by 22 percentage points to 53 percent, which highlights the fact that foreign investors in particular are convinced about the German economy’s resilient fundamentals and its real estate sector. “We assume that international interest in German retail properties will hold steady in 2024 as well. This especially as retail already produced proof of its stability in 2023, growth in e-commerce has slowed, and the yields for international investors have become more attractive again,” Schönherr comments.  

Yields continued their uptrend in 2023

For instance, high street property prime yield expressed as an average of the Top 7 cities came in at 4.84 percent at year-end 2023. Compared with the same period in 2022, this marks an increase of 0.95 percentage points. Of this growth, 0.3 percentage points was accounted for by the fourth quarter of 2023. By comparison, the last quarter saw the prime yields of shopping centers in A and B locations advance at a somewhat faster rate: by 0.4 and by 0.35 percentage points to 5.9 percent and 7.2 percent, bringing growth in the figures for the full year 2023 to 0.8 and 0.7 percentage points respectively. Both food markets and retail parks did not record any increase in prime yields in the second half of 2023. However, the prime yield of food markets rose by 0.4 percentage points to 4.7 percent over the course of the year as a whole, and that of retail parks by 0.7 percentage points to five percent. There are nevertheless signs of stabilization here and in the net initial yields for first rate DIY stores that climbed by 1 percentage point during the year to currently 5.75 percent.

Outlook for 2024

“Starting from a rather more modest level at the beginning of 2024, transaction activity is likely to pick up momentum as the year progresses. Investors active in the retail sector will be offered attractive investment opportunities in all risk structures and sub-asset classes over the full year,” Schönherr expects. “The actual volume the investment market for retail properties will achieve in the full year is currently difficult to predict. This will largely depend on how successful refinancings are, along with the extent to which and when domestic institutional investors will be ready and much more willing to invest again.”

“The tight monetary course steered by the ECB is increasingly taking effect, with the result that the cycle of interest rate increases is likely to have peaked, enabling greater planning reliability in investment decisions. Contrary to many other market participants, we would nevertheless advise against counting on the rates being lowered any time soon as the ECB is still voicing its concern – it is seemingly convinced about intransigent inflation,” Linsin cautions.

“Against the backdrop of the ongoing stabilization in financing conditions, real estate yields in 2024 are likely to have put uptrends largely behind them,” says Gimpel in anticipation.