Especially in expensive metropolises: retail rents are falling due to Corona

Especially in expensive metropolises
Retail rents are falling due to Corona

The competition from online trading has been causing problems in cities for a long time – in the last few months Corona has driven even more customers onto the Internet. The pandemic is now causing retail rents to drop significantly, by as much as 27 percent. However, that hardly helps the industry.

The corona pandemic has caused rents in German retail to collapse in new contracts. Especially in the expensive metropolises there are sharp declines after years of boom, as a study by the real estate association IVD published this Wednesday shows.

Accordingly, retail rents fell in the first half of 2021 on a national average by a good 10 percent compared to the same period in the previous year, which was only partially affected by the pandemic. In the seven largest German cities – Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf – they fell even more sharply by almost 13 percent, according to IVD. The declines in small and medium-sized towns, on the other hand, were significantly lower at around one percent to a good five percent.

According to the study, the discounts were most evident in Munich, where rents for small retail spaces in new contracts plummeted by almost 27 percent. In Stuttgart they collapsed by 20 percent. In Berlin and Düsseldorf the minus was significantly lower (minus 12).

The higher the rent, the greater the decline in prices

“The higher the rents, the more the prices have fallen,” said IVD President Jürgen Schick. Retail rents have risen sharply in recent years with the good economic situation. Now in some places – like in Munich – a limit has been reached. In small and medium-sized towns, the rental prices are significantly lower, so that there is less scope for corrections. However, the trend towards shopping on the Internet has reached all cities.

According to IVD, the average vacancy rate in retail was recently around 20 percent – around a third more than before the start of the pandemic. The situation of the retail trade, which had previously suffered from competition from online trading, has worsened. There is now a trend towards shorter leases and smaller spaces, said Schick. He called on politicians to simplify building law so that retail properties, especially in B and secondary core locations as well as in small and medium-sized towns, could be more easily converted into apartments or offices.

The study looked at office and retail rents in thousands of new contracts. Prices in 370 cities and municipalities recorded by market reporters of the IVD were considered. According to the association, the IVD brokers, who also represent property managers and experts, advise around 40 percent of all real estate transactions annually in Germany.

Office markets stable despite home office trend

In contrast to the retail sector, office markets remained stable during the crisis – despite the trend towards home offices. Across Germany, rents have fallen by less than one percent year-on-year, according to the IVD. While declines of more than one percent were recorded in the seven largest German cities, there were even slight rent increases in small and medium-sized towns.

Corona has only slowed the momentum of the past few years, said Schick. Office rents rose by more than ten percent between 2015 and 2019. In the pandemic, there was initially a lot of uncertainty about the future of work. But now the unemployment rate is falling again, which also supports the office market.

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