Germany’s city-centre retail rents rise as prime shopping streets shrink

Retail rents in German city centres rose about 6% in 2025, well above inflation of roughly 2.3%, according to a study by the German Economic Institute (IW) covering 16 cities and around 268,000 rental listings. After several years of stagnation following the pandemic and the rapid expansion of e-commerce, the figures suggest that brick-and-mortar retail in prime locations has regained pricing power.

Yet the recovery is more selective than the headline figure implies. Rather than signalling a broad revival of downtown retail, the IW data points to a market increasingly concentrated around a smaller number of prime pitches.

Central city-centre locations command an average rent premium of roughly 60% compared with the wider urban area. Demand is focused on these core stretches of high street, while weaker sections of the same city centres continue to struggle with vacancies and declining footfall.

In practical terms, this means the geography of viable retail is contracting. Being on the main shopping street now matters more than ever; being near it no longer provides sufficient protection.

“Attractive inner-city locations may become smaller in terms of space but will remain sought-after,” the IW study concludes.

Prime rents rise as the retail core contracts

The pattern visible in the rent data reflects broader structural changes in Germany’s urban retail landscape. The collapse of the Signa property empire and the liquidation of several Galeria department stores have accelerated a shift away from large anchor formats towards smaller, more flexible retail units.

Former department stores are increasingly being broken up into multiple tenancies rather than re-let as single large retail spaces. Landlords are pursuing fragmented layouts that reduce tenant concentration risk and allow more varied tenant mixes. What began as necessity in the wake of the Galeria collapse is gradually becoming the preferred structure for many city-centre properties.

At the same time, the growth of online retail has slowed from the surge seen during the pandemic years. Combined with a decline in available listings, this has helped stabilise the physical retail market.

The resulting rent increases therefore reflect market adjustment rather than a surge in consumer demand. Marginal locations are exiting the market rather than re-letting at lower rents, while prime locations capture a larger share of tenant interest.

From an investment perspective, the shift is significant. City-centre retail is no longer moving uniformly across entire districts. Rent resilience is increasingly concentrated in the most attractive micro-locations along prime shopping streets, while secondary stretches remain structurally vulnerable.

From shopping streets to mixed-use destinations

Consumer behaviour is reinforcing this shift. Research by property adviser JLL suggests that younger shoppers increasingly expect city-centre visits to combine retail with social and leisure experiences. Gastronomy, entertainment and public space are becoming core elements of successful retail locations rather than optional additions.

A recent Bavarian study of city-centre attractiveness highlights similar dynamics. Traditional shopping remains the main reason people visit downtown areas, but many combine retail trips with restaurant visits, work activities or cultural events. These so-called coupling effects are increasingly important in sustaining footfall.

This shift helps explain the growing emphasis on mixed-use redevelopment in urban retail districts. Former department stores and large retail boxes are increasingly being converted into multifunctional properties that combine retail with offices, residential uses, gastronomy and leisure space.

Berlin offers a visible example. The former Galeries Lafayette department store on Friedrichstraße is currently being redeveloped into a mixed office and commercial building including restaurants, retail units and leisure amenities. Yet the surrounding shopping street still struggles with declining attractiveness, illustrating how even prominent retail addresses can weaken if the wider urban ecosystem loses momentum.

Taken together, these trends point to a retail market stabilising in value but narrowing in scope. Germany’s city centres are not becoming obsolete, but the viable retail core is becoming smaller and more dependent on carefully curated tenant mixes and mixed-use environments.

For investors, this means that downtown retail is increasingly an execution market rather than a broad recovery trade. Prime high-street assets in the right micro-locations can still command rising rents. Secondary locations, even within the same city centre, may continue to face structural pressure.

The city-centre retail recovery is therefore real, but it is also narrow. The viable retail footprint is contracting, not expanding, and capital is concentrating ever more tightly on the streets that continue to generate footfall, experience and urban relevance.