Six German Retail Properties - the Louis Group International ...

the german retail property market
With a 2005 retail spend of €333 billion (of Europe's
€2,300 billion), Germany is the 3rd largest retail market
in Europe behind France and the UK. Yet, on a per capita
basis it ranks only 14th, whereas France and the UK are
tied at 6th.
Retail sales growth over the period 1995 - 2005 was a
mere 2%, significantly behind France and the UK at 35%
and 52% respectively. Although forecast retail sales
growth for the next decade (2006-2017) is better at 6%,
it is still far behind the expectations for France at 27%
and the UK at 31%.
German consumers, although among the most well-off in
Europe, are extremely price sensitive. Price is consistently
placed above considerations such as quality, choice and
service, and the concept of "value-added" is almost nonexistent.
This gives little incentive to retailers to improve
their offerings or be innovative in their retail practices.
Lacking the vibrancy of a consumer driven market (such
as France or the UK), many of Germany's larger retailers
are forced to look to broader European markets for growth.
Consequently, of all European retailers, German businesses
are among the most international (accounting for 25%
of European cross-border sales) with significant market
share in most countries.
Somewhat paradoxically, however, Germany attracted
3.6% (7th most) of all shopping centre investment in
Europe in 2004, and 9.4% (2nd most behind the UK)
in 2005, with the result that (in 2006) Germany had
12,4 million m 2 of shopping centre floorspace - the 3rd
most in Europe.
There is undoubtedly enormous international interest in
German retail property, which may be for 3 main reasons:
• Under-Supply - Although shopping centre space has
doubled in the last 10 years, Germany still offers only
140m2 of shopping centre space per 1,000
inhabitants. In contrast to more than 200m 2 in Spain
and France, and around 300m 2 in the Netherlands
and Sweden, Germany appears to have some catching
up to do.
properties germany
• Yield Gap - Financial investors are attracted by the
favourable interest rate environment. The comparatively
high property yields contrast with relatively low
financing rates, create an attractive opportunity for
highly leveraged investors. The interest rate spread
between rental yields and long-term financing rates
is favourably high in comparison to other European
countries.
• Economic Revival - Statisticians talk of the mean
reversion concept. What this implies is simply that
a market will not be able to deviate permanently from
its trend growth rate. Retail trade has been depressed
in Germany for some time and there is an expectation
that "what goes down must come up."
Private Placement Memorandum Six German Retail Properties
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