How to make money on shops and supermarkets in Europe
Demand for European retail property has been rising steadily over recent years. During the first nine months of 2015, this segment received investments totalling €51.5 billion, which is 59% more than the same period in 2014 according to Cushman & Wakefield. Germany is the most popular market: investments were 90% higher than in 2014, breaking all the records since the 2008 crisis.
The minimum investment threshold for
High street retail: the main liquidity indicator for these properties is location. Premises situated in popular shopping streets with intensive pedestrian traffic that have an attractive exterior and are conveniently designed for customers (e.g., brightly and
Supermarkets: the best locations are in residential districts of cities with growing populations. They should be situated near public transport links and main roads. This is one of the most popular investment formats for international investors. The advantages include ease of management, low risk and relatively high yields (i.e.,
Shopping centres: pay attention to the spending capacity in the region, surrounding infrastructure and transport access to the premises. Recommended tenants include food retailers, consumer electronics, soft goods stores (e.g., clothing brands), cafés, recreational centres and cinemas. This type of investment is challenging to manage due to a large amount of tenants and should only be considered by professional real estate investors. Lease agreements are usually signed for
Retail warehousing property: it's better to choose warehouses located near major transport arteries (e.g., motorways). This type of property comes with high yields (i.e.,
Lease rates and yields for retail property in Austria, Germany and the UK
|High street retail||Shopping centres|
EUR per sq m
EUR per sq m
|Frankfurt am Main||4.20||320||3.2||5.45|
Where to buy
The retail segment depends enormously on the economic situation, even more so than other property types. Therefore, it is worth choosing countries with stable economic indicators. Tranio’s commercial property experts recommend investing in Austria, the UK and Germany. The pros of these markets are GDP growth, low inflation, falling unemployment and strong legislation guaranteeing reliable protection for business activity as well as affordable lending rates and high internal demand.
Property in big European cities is easier to sell, in demand and presents lower risks. It’s important to remember that towns with
50,000−100,000inhabitants are not necessarily high-risk. For instance, retail property in the centre of a small German town is a safer investment vehicle than buying in a peripheral district of a major city.
It is better to buy property in cities that are not resorts but receive large numbers of tourists and business travellers throughout the year. These places are capitals like Berlin, Vienna and London as well as big regional centres Graz, Düsseldorf, Salzburg, Innsbruck, Manchester, Munich, etc.
Main European retail markets
|Austria||Vienna||Kärntner Straße, Kohlmarkt, Mariahilfer Straße, Tuchlauben|
|High street retail property and shopping centres in key locations is in demand. In 2016, Tranio.com expects tenant demand and lease rates to increase.|
|United Kingdom||Birmingham||New Street, High Street|
|London||New Bond Street, Brompton Road, Carnaby Street, Kensington High Street, King's Road, Covent Garden, Regent Street, Sloane Street|
|Manchester||King Street, Corporation Street, Market Street, New Cathedral Street|
|Lease rates for retail property in Central London are among the most expensive in the world (e.g., $14,200 per sq m per year for New Bond Street). Vacancy rates there are declining but demand and investors are rising.|
|Germany||Berlin||Alexanderplatz, Wilmersdorfer Straße, Kurfürstendamm, Tauentzienstraße, Friedrichstraße, Hackescher Markt, Schloßstraße|
|Düsseldorf||Grabenstraße, Königsallee, Mittelstraße, Flinger Straße, Schadowstraße|
|Munich||Weinstraße, Dienerstraße, Sendlinger Straße, Kaufingerstraße, Leopoldstraße, Maximilianstraße , Perusastraße, Residenzstraße,Theatinerstraße|
|Frankfurt am Main||Gоеthestraße, Große Bockenheimer Straße, Neue Kräme, Rossmarkt, Steinweg and Biebergasse, Schillerstraße, Zeil|
|Nearly 50% of all requests for commercial property purchases on Tranio.com are for Germany, especially shopping centres in Western Germany’s biggest cities.|
Negative economic factors such as inflation, recession, shrinking consumer demand can force vendors out of the market, leaving property owners with empty premises. Minimizing macroeconomic risks is difficult for investors. The main way to approach this question is to study market forecasts from reliable sources in the years before investing.
Tenants and risk
Choose a tenant pool with partners ranked BBB− to AAA. These tenants are most capable of fulfilling their obligations towards the building owner once the lease agreement is signed. In addition, banks are more willing to provide the investor with a loan based on this tenant pool. In London these are Marks & Spencer, Tesco, Sainsbury’s. In Germany, aim for Aldi, Edeka, Lidl, Metro and Rewe.
When investing in shopping centres, it’s important to choose the right anchor tenants. Typically, these are major
The success of a shopping centre draws upon the anchor operator, which is part of a major retail network that attracts customer flows with its name for the other, smaller tenants. As a general rule, the construction of retail property begins upon signing a lease agreement with the main tenant. The lease agreement will also help when looking for a loan to finance the construction stage. Major operators also pay a lower lease rate compared to smaller tenants. Anchor tenanst usually sign a lease for at least 10 years but dealing with such operators has its own risks. If the key tenant decides not to renew the lease, the owner could lose a lot of money.
Adjusting the lease rate to reflect inflation is a helpful tool. In Austria and Germany, rates are reconsidered annually in line with the Consumer Price Index (CPI). In the UK, rates are usually recalculated every five years in accordance with market prices.
The specifics of retail property purchases and ownership
|Lease term, years||Typical — 10 years (5 years for shopping centres)
Maximum — 18 years
Maximum — 35 years
|10 or 15 years|
|Lease payments||Monthly, one month in advance.
Paid as a percentage of turnover (
|Quarterly/monthly, in advance.
Paid as a percentage of turnover for factory outlets, hotel shopping units and airports.
|Monthly, one month in advance
Paid as a percentage of turnover for shopping centres and retail complexes: minimum rent paid at the beginning of the year and turnover percentage fee charged at the end.
|Lease rate adjustment||Annual for
||Yearly according to CPI||Annual for
|Maintenance||Tenants — indoor premises
Landlords — supporting structure and surrounding area
|Tenants — indoor premises
Landlords — supporting structure and surrounding area
|Maintenance is the owner’s responsibility; some indoor duties can be shifted to the landlord|
– service fee (
– Deposit (
– service fee incl. the utility charges and VAT (20%)
– service fee incl. property tax and VAT (19%)
Yulia Kozhevnikova, Tranio