German retail shrinks in space but strengthens in value

Germany’s retail property market is no longer behaving as a single asset class. Performance is increasingly determined by tenant format and location quality rather than by retail exposure alone, as highlighted in analysis presented by BBE/IPH chairman Joachim Stumpf as part of the ZIA Spring Report at Quo Vadis 2026 in Berlin.

The figures illustrate how far the divergence has already progressed. Between 2010 and 2025, food retail sales in Germany grew by 44.8%, while non-food sales declined by 8.6%. Food and drugstore products now account for roughly 95% of brick-and-mortar retail turnover, reinforcing their role as the primary income anchor for retail landlords. By contrast, categories such as textiles, footwear and sporting goods have in many cases seen physical market share fall below the 50% threshold as online distribution continues to capture demand.

The data challenges the persistent narrative of retail as uniformly distressed. Instead, the sector is fragmenting. Discounters continue to benefit from heightened consumer price sensitivity, while brand manufacturers increasingly rely on proprietary store formats to retain customer access. Health and beauty concepts are expanding into high-footfall locations, and large retailers are rolling out smaller urban formats designed to maintain city-centre presence.

Pressure is concentrated elsewhere. Mid-sized non-food retailers face mounting operational constraints ranging from labour shortages to unresolved succession issues alongside sustained online competition. For product categories that historically defined German high streets, declining physical sales shares represent a structural shift in space demand rather than a cyclical downturn.

Location quality is reshaping retail outcomes

The divide is becoming increasingly geographic. Successful formats are concentrating in metropolitan areas and shopping centres with supra-regional catchment areas, while shrinking formats dominate smaller and medium-sized towns. Cities with strong economic fundamentals, tourism appeal and high centrality continue to demonstrate resilience, while weaker locations face accelerating loss of commercial use.

At the micro level, prime retail zones themselves are contracting. Demand is increasingly focused on smaller core areas with sustained footfall, while peripheral pitches are in many cases losing long-term retail viability altogether. The result is a progressive sorting process with direct implications for asset values.

Recent rental data suggests that this concentration is already translating into pricing power. According to research by the German Economic Institute (IW), retail rents in German city centres rose by around 6% in 2025, outpacing inflation and reversing earlier declines. Prime inner-city locations continue to command rent premiums of roughly 60% compared with wider urban areas, even as the total footprint of viable retail space contracts. Attractive locations may therefore become smaller, but remain strongly sought-after.

Properties in secondary towns reliant on discretionary non-food tenants face structural headwinds that repositioning alone may struggle to overcome. By contrast, assets anchored by necessity retail or experiential uses in major urban centres continue to attract tenant demand and investment interest.

The strategic response emerging in stronger locations reflects this reality. Pure retail concepts are giving way to multifunctional environments integrating gastronomy, health and wellness services, leisure uses and everyday services aimed at extending dwell time and stabilising visitor flows. As recent consumer research by JLL indicates, gastronomy is increasingly evolving from an optional supplement into a core component of successful retail destinations, particularly for younger urban demographics.

Not all alternative uses contribute equally. Restaurants and medical services often generate higher and more stable footfall than traditional retail tenants. Residential conversions may support rental income but can reduce visitor frequency, while cultural or event-based uses strengthen identity but rarely maximise rents. As Stumpf noted, long-term property performance increasingly depends on achieving the right operational balance between income generation and visitor attraction.

Repositioning window narrows

For institutional investors, retail performance is becoming increasingly asset-specific. Outcomes now depend on tenant resilience, position within the urban hierarchy and the physical adaptability of buildings to accommodate mixed-use concepts. Food-anchored schemes in strong urban markets offer defensive characteristics, while non-food-dependent assets in secondary locations face ongoing structural adjustment.

Capital allocation patterns are beginning to reflect this shift. Transaction volumes in Germany’s retail investment market reached approximately €6.4bn in 2025, with specialist retail parks and food-anchored formats accounting for nearly half of activity, according to CBRE. International investors have also returned selectively to the sector, focusing primarily on core-plus and value-add opportunities linked to resilient tenant structures rather than traditional high-street exposure.

Brick-and-mortar retail nevertheless remains central to urban ecosystems as a driver of footfall and neighbourhood activity. The question for investors is no longer whether retail survives, but which formats and locations remain capable of generating sustainable income as structural change accelerates.

The divergence between food and non-food performance suggests that much of the operational repricing has already occurred. Asset values are gradually adjusting to reflect that reality. As tenant demand concentrates further around proven formats and established urban nodes, opportunities for proactive repositioning may become increasingly limited.