Retail investment market in Germany: High momentum in the portfolio sector continues; However, sales drivers are still missing

The retail investment market carried the momentum from the year-end business in 2024 into the first quarter of 2025, but without being able to report an extremely high total volume in the interim balance sheet. In the first three months, despite the good market dynamics and a total investment volume of around € 1.28 billion, only the key revenue drivers that were still decisive in the same quarter of the previous year were missing. This observation is underlined by the fact that larger transactions of €50 million or more fell by 45%, while deals up to the €50 million mark were able to roughly confirm their previous year's level (-5%). This is the result of the analysis by BNP Paribas Real Estate.

"In a comparison of the three most important commercial property types, the retail investment market was not able to take the top position as it did 12 months ago, but overall the top asset classes are once again relatively close to each other in a long-term comparison: Office investments have regained the lead with a good € 1.7 billion, while logistics and retail properties are almost on a par with almost € 1.3 billion each," explains Christoph Scharf, Managing Director of BNP Paribas Real Estate GmbH and Head of Retail Services.

The portfolio segment in particular is sending positive signals, achieving its best interim result in the last 5 years at just over €682 million and thus being able to participate more extensively in total sales than individual deals (€598 million). This phenomenon occurred only sporadically over many years and was usually associated with larger company takeovers. The very good demand situation in the portfolio sector is currently primarily benefiting the retail and food division, which accounts for almost 65% of market activity. Shopping centres are currently trading at almost 22% of the volume, demand for commercial buildings remains consistently high (around 11%), especially in the small-scale segment, and department store investments have so far recorded a low 3%.

Hardly any turnover in the A-cities, prime yields stable

In the context of the market-dominating volume of specialist stores, it is not surprising that the A-locations, which usually appear through large-volume high-street or shopping centre sales, have so far only been able to participate to an extremely small extent in the result. To date, only a few smaller properties have been sold in the top markets. However, this is to be seen as a snapshot and in the further course of the year it can be assumed that investment volumes in the high-street sector in particular will increase significantly.

There were no changes in net prime yields in the first three months, after only retail parks rose again for the first time at the end of the year (4.65%). Individual food retailers are still at 4.90%, shopping centres at 5.60% and DIY stores at 5.70%.

Prospects

Developments in the course of 2024 have noticeably improved the positioning of the retail investment sector within the commercial real estate market. The retail division was able to continue to benefit from this in the first quarter of 2025 and maintain its positive market sentiment at the start of the year.

Against the background that several and also larger transactions are already in the preparation phase, increasing sales can also be expected in the further course of the year. Taking into account the extremely dynamic developments at the end of the year with the numerous finalised sales processes and in some cases long lead times from the start of marketing to the notary, the current interim result is even put in a better light.

In terms of property types, the overall focus of demand remains clearly on retail park and food investments as well as portfolios in this segment. At the same time, however, increasing impulses and offers in the shopping center segment are currently being registered. In addition, high-street investments remain a highly sought-after asset class in good conditions, primarily in terms of macro and micro locations. Due to these very complex investment opportunities that retail investments currently offer, the group of investors from Germany and abroad can also be considered relatively broad. This, too, represents a very good starting position in a resurgent investment environment.

"In the slipstream of the market conditions outlined above, it can be assumed that the stabilisation trend for prime yields will continue, despite the recent slight increase in financing costs. In the retail park segment, however, it cannot be ruled out that prices will demonstrably rise again in the short to medium term, especially for food-anchored property types," says Christoph Scharf.

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