German retail warehouses back in the spotlight: research

German retail warehouses have reappeared on the radars of international investors, according to new research by BNP Paribas Real Estate.

The research suggests the segment is emerging as a strong asset class and that demand in this sector is being driven by sound fundamentals making them an especially good investment that is likely to draw attention from overseas investors.

Andrew Cruickshank, UK director of international investment at BNP Paribas Real Estate said: 'This sector became the focus of international private and institutional demand during 2005 to 2007 and the weight of this demand pushed prices up to record levels which were promptly re-priced following the exodus of international investors. However, there is now a clear re-emergence of interest in these assets.'

BNP Paribas Real Estate highlights a number of factors that are shaping activity in this sector. A stable consumer spending pattern and a strong manufacturing and engineering sector has meant that German consumption was not as affected as other Eurozone countries. By 2011, private consumption is expected to be positive again ensuring that spending power remains constant.

The German retail market is made up of a large contingent of discounters, with 40% of the grocery market held by food discounters. This discount phenomenon is spreading into other retail sectors meaning that retail margins in Germany are amongst the tightest in Europe.

Cruickshank: 'The increasing discount mindset means that German retailers will need to reorganise and shift towards larger format stores. The DIY sector, fed by a desire for home improvements, is one area expected to see great growth levels.

'Price sensitivity is a defining feature of the German retail market and there is little incentive to expand spending on convenience and other necessities. Discounting will continue to spread outside of essential retailing with a greater range of goods available and it will be difficult to meet this demand with small town centre based units leading retailers to out-of-town retail parks and larger premises.'