Market for leasing in A1 locations in area of retail trade defies financial crisis till now

According to an analysis of the broker and consulting company COMFORT, specialized in the negotiation of retail-trade used real estate in the A1 locations of Germany’s city centers, the market for the letting of floor space to the retail trade in A1 locations can maintain its position despite the results of the financial crisis till now apparently quite well. The view of the 4th quarter of 2008 and the next year was also shaped by careful optimism. This, said Manfred A. Schalk, managing director of COMFORT München GmbH and nationwide responsible for the coordination of the LOB (line of business) of letting, was the result of numerous conversations with the expansion managers of chain-store owners in the context of the Expo Real which recently took place in Munich. The majority, Schalk continued, is still expressly very much interested in the leasing of suitable space for retail trade in the top locations. Furthermore there was an increase of the individual demand of floor space on top of that due to the trend of assortments getting ever deeper and broader. The liquidity necessary to realize the partly very ambitious expansion plans, existed especially with the strong and well established chain-store owners. Probably the background of these statements, which were surprisingly positive in view of the sharpened financial crisis, Schalk thinks, is the very positive development of sales in the fashion business, especially in the area of the Young Fashion sector, in the weeks before the Expo Real.

However, the market for letting in the A1 locations has been also impressive in the period from the first to the third quarter of the current year 2008. So the COMFORT Group could increase the number of concluded rental agreements by 85% in this time period in comparison with the first three quarters of the year 2007. This was accompanied by a rise of the corresponding turnover related commission by 77%. Even if these figures were not representative of the entire market, Schalk admitted, the increase would still indicate clearly the sustainability and stability of A1 locations particularly at times of crisis. Lately quite a few national broker enterprises came up with considerably worse forecasts.

The massive increase within the COMFORT Group, Schalk explained, was also partly connected with the fact that the new COMFORT team in Leipzig had a very successful start in October 2007. But even when adjusted for this development the interim result was still impressive and in the end to be attributed to the consistent specialization of the COMFORT Group in the urban A1 locations.

When analyzing the made conclusions it became also apparent that these extended regionally across all cities and sizes of cities and that they were also distributed relatively even over the whole year as regards the course of time. The expansionist lessees also recruited themselves from all classic groups with demand, i.e. from the areas of the clothing industry, shoes, drugstores, telecommunications, media as well as catering and accessories. Exemplary lettings to be mentioned in connection with this are conclusions with O2 in Kassel, Fulda and Speyer, with Tom Tailor and Gerry Weber in Leipzig, with s. Oliver and Roland Schuhe in Munich or with Apollo Optik in Ingolstadt. The fact that numerous foreign or international concepts do not only plan expansion to Germany on paper but actually rent is remarkable and intensifies expansion speed. The best examples for this are COMFORT's conclusions of rental agreements with TK Maxx, among other in Rostock, with Lacoste, Ecco Schuhe as well as Promod in Berlin, with Claire’s in Dresden or with American Apparel in Mannheim. But there is still demand for the luxury locations, too, as prove the two conclusions of rental agreements with Joop! as well as St. Emile at the new embankment in Hamburg.

The retail trade market as such has not been growing in Germany for years already. Nevertheless, more shop units are let out – and this primarily for three reasons: concept business upturn, company business upturn and site upturn. This is also the explanation for the persistent demand of certain chain-store owners for floor space and the growth of floor space in certain inner city locations.

In addition to that there are another two significant exceptional influences due to the current economic situation in Germany. Namely the international concepts and users who still press Europe’s largest retail trade market on the one hand. And on the other hand the counter-cyclical behavior of chain-store owners who seek to seize the opportunity to gain bigger market shares where others are weak during the crisis. So it is not qualitative but quantitative growth which is in the foreground, a tendency that already existed at the end of the eighties.

A broker company like COMFORT that specializes exclusively in the negotiation of retail-trade used real estate in exactly those locations naturally benefits from this; in good times as well as in bad times. In addition to that chain-store owners increasingly use the location as an instrument to strengthen their own brand name. This also contributes to the great success of the COMFORT Group in letting.

A current survey of the professional journal “Textilwirtschaft” confirms to the positive prospect of COMFORT’s experts. Arndt Brockmann, managing director of ZARA, for example, sees the potential to possibly profit by the crisis, because "… we have been able to notch up increases in sales also within the last weeks". And Andreas Hilgenstock, co-partner of Engelhorn in Mannheim, says: "We make good transactions and there are no indicators which point to a possible change in the near future." Hubertus Pellengahr, managing director of the trade association HDE, also announced some positive news in the “Süddeutsche Zeitung” and explained in the general sense that the prerequisites for a "fair" Christmas trade were quite good: high employment, stable incomes and no symptoms that the Christmas bonus could possibly be cut.

Altogether it seems that, despite the possible real economic consequences of the financial crisis on consumption, a multitude of chain-store owners maintain the motto “just watch me”! This, Schalk said, was still accompanied by a strong competition for markets, which was accordingly intensified by the limited number of first-class locations available. Therefore he could not agree at all with the view of other relevant market participants that the financial crisis will have a noticeably negative influence on the segment of the retail-trade used real estate in the inner city A1 locations and especially on the market for letting. At present, however, there could be no talk about it in the daily business, Schalk said in conclusion.