Retail feels intuitive — but instinct is often a poor guide to performance

We've often thought there is a jauntiness about people who work in retail real estate that you don’t so often find in other parts of the property market. Logistics professionals are precise; housing specialists are earnest; office brokers are measured. But retail seems to attract a different type — people who are instinctively attuned to what consumers want, who follow trends, who understand that a shopping centre or a high street is ultimately a stage on which human behaviour plays out in real time.

Retail is marketing. It is theatre. It sits at the cutting edge of what we value, what we buy, what we aspire to. Which perhaps explains why, attending the Handelsimmobilienkongress in Berlin last week, the mood felt more animated than the numbers alone would justify. That instinctive confidence now sits uncomfortably with a market where execution and financing, more than intuition, decide outcomes.

And yet the numbers are not bad. Rents in prime locations are moving up. Transaction activity has returned. Shopping centres, which not long ago felt broadly uninvestable, are changing hands again. Food-anchored retail parks posted record investment volumes in 2025. None of that is insignificant. But it does not quite add up to momentum — and the gap between the mood in the room and the conditions in the market is itself worth examining.

One panel discussion captured the tension well. A centre that had been evaluated for fifteen years using six annual rent assessments — three bakers, three hairdressers — consistently returned a score of 1.5. On paper, a stable asset. In practice, almost entirely uninformative. It was a reminder of how the industry has been operating: with tools that measure the wrong things, and miss what actually determines whether a centre lives or dies.

But looking past the renewed activity, one question keeps returning: why is retail not moving more decisively if the conditions appear to be improving? Part of the answer lies in demand — or, more precisely, in the lack of it. German households have the capacity to spend, but are choosing not to do so with any great enthusiasm. Retail turnover is holding up, but it is not pushing forward in real terms. The sector remains operationally intact, yet oddly restrained.

There is a tendency to treat this as cyclical — as something that will correct itself once confidence returns. We are not entirely convinced. The savings rate in Germany remains very high by both historical and international standards, and there are reasons to think it may stay that way. Households are looking ahead with a degree of caution: to an ageing population, to rising social burdens, to a future in which income growth may not keep pace with expectations. In that context, holding back rather than spending is not irrational. It is a rational response to uncertainty. If that is right, retail is not waiting for a rebound in consumption. Instead, it is adapting to a lower baseline.

Consumers are not constrained — they are cautious

That caution is reinforced by more immediate concerns. Inflation, which had begun to stabilise, is edging upwards again, with geopolitical tensions feeding into expectations for everyday costs. Rising rents add to the pressure, and with one of the lowest home ownership rates in Europe, most German households do not benefit from asset price increases. Even where incomes are stable, the margin for discretionary spending feels increasingly uncertain.

The other constraint is less visible and more recent. Deals ARE happening, but they are harder to execute than they appear from the outside. Financing has become the decisive variable. Transactions stretch out over three to six months, structures shift, and outcomes can change midway through a process. One panellist described subcontractors on an €80m project already asking for price surcharges linked to rising material costs. Geopolitical risk is now feeding directly into live deals. Capital is available, but only where it can be matched with credible plans and the ability to deliver them.

The frank assessment from those doing the deals was instructive. Target IRRs of 12 to 14% in specialist retail are difficult to justify under current conditions. Achieving returns in the high teens requires yield compression that cannot be assumed. A consistent 8%, built through disciplined asset management, is both achievable and honest. "If you look each other in the eye and say it clearly" — as one participant put it — that is the more defensible basis for investment decisions right now.

Retail is not behaving unusually. It is simply further along. Pricing has adjusted, financing has tightened. Performance has become more closely tied to execution than to expectation. Other sectors — offices, logistics, even residential — are moving in the same direction, but retail has arrived there first, and more visibly.

That may be because retail was always the most exposed. It faces the consumer directly, and it takes the hit first. It has no buffer of long-dated leases or supply constraints to soften the adjustment. When conditions change, retail feels it first.

It is also the most fragmented. Food-anchored assets with their steady turnover and long leases behave more like infrastructure than discretionary retail. Other formats depend on constant reinvention, on attracting visitors and extending dwell time in ways that have little to do with traditional leasing models. Between those poles sits a wide range of assets that look similar on paper, but perform very differently in practice.

Put all of that together, and the familiar picture begins to blur. Retail is visible, but not easily read. It is active, but not expansive. It attracts capital, but only selectively. And it demands a level of operational judgement that sits uncomfortably with the idea that it is the most intuitive part of the market.

The people who work in retail real estate are jaunty for good reason. They are good at reading rooms, in every sense. But the room has changed, and the reading has become much harder. Retail, in other words, is the sector everyone understands — until they try to invest in it.