Successful redevelopment of the former Hertie department store in Berlin Neukölln

The project team, consisting of experts from retail property specialist COMFORT, project development company CENTRUM and the B&L Group, recently presented a strong argument in favour of the pros when it announced the completion of a project to redesign, convert, lease out and reopen the former Hertie department store at the prime location of Karl-Marx-Strasse 92-98 in the western Berlin district of Neukölln. It is the first project of its kind, so the entire team is absolutely delighted about how successfully it has closed out.

The property, a former department store with approximately 9,500 m² floor area and around 20,000 m² utilisation area, was purchased by Düsseldorf-based CENTRUM Grundstücksgesellschaft mbH from Highstreet, a Goldman-Sachs fund, in June 2007. Then, German retail property specialist COMFORT set about developing a brand new concept for the building with the assistance of Brunswick-based architect, Heiko Vahjen, who drew up the plans. Soon afterwards, the project team was joined by another co-investor, a Hamburg project development company called the B&L Group.

The COMFORT Group's concept, which also covered the subsequent letting of the property, envisaged the department store building's conversion into a commercial building with modern retail units that appeal to leading retail chains. It aimed to reposition the property by transforming it into a prime quality building with an attractive tenant mix that provides an interesting alternative to the "Neukölln Arkaden" shopping centre which opened in 2003.

The 102 metres-long department store facade was divided up into six retail units in sizes ranging from 530 m² to 2,400 m² on the ground and first floor and three retail units of between 90 m² and 1,600 m² in size in the basement which are connected to the ground floor by escalators.

The ease at which the retail units were subsequently leased out was convincing proof of how effectively COMFORT's concept reflects retailer needs. Long-term lease agreements have been concluded with all the anchor tenants that the project team had hoped to attract. "What a shame we didn't have a few more units," said Ronald Steinhagen, executive managing partner at COMFORT Berlin-Leipzig GmbH. "There was enough qualified demand for another two to three thousand square metres."

The units on the ground floor and first floor house attractive international labels such as H&M, Esprit, Edc, DM, TK-Maxx, C&A and the new Aldi store that has opened in the basement is a practical supplement. REWE-Citymarkt, the adjacent supermarket, was handed over the tenant so that it could implement own redevelopments and it will be opening slightly later than the other units at the middle of next month.

The initial feedback on sales revenue from tenants confirms that they are "way over budget". "We'd greatly underestimated this catchment area," admitted Sven Gröning, Head of Expansion at US label TK-Maxx.

It seems that the objective of establishing sustainable location quality has already been achieved. There is a high concentration of very attractive and successful national retail concepts that fit in with the location and are attracting high customer volumes.

The people who work at City Hall next door have also welcomed the property's redevelopment and the resulting positive effects. Heinz Buschkowsky, Mayor of Neukölln, was full of praise. "We are obviously delighted that Neukölln has been spared the fate of the many local communities where former Hertie stores now stand vacant. The new commercial centre with its interesting sector mix is a sustainable investment in every respect and it makes a valuable contribution to enhancing central Neukölln's city development concept. Well done to the project team for taking this initiative and many thanks for bringing this building back to life."

The underground area of the car park on the site, which had been closed for many years due to structural defects, was connected to the retail areas in the basement. The overground section of the car park was demolished and rebuilt to provide a total of 402 spaces. It has now been leased out on a long term basis to the new operator, abc-Parking.

The issue of how to use the upper floors of department store buildings often poses problems. In this project, it was solved by pooling all building technology on the second floor so that it is as close to the retail levels as possible. Lagerbox, a Dutch self-storage chain, is located on the third floor. The fourth floor has been leased to Tripple Nine, a regional gym chain, and the fifth floor is being converted for offices and surgeries.

The building's original utilisation area of almost 20,000 m² has only been marginally increased to 23,575 m². However, the quality and productivity of the entire area has been substantially increased. Around EUR 65 million in total were invested in the property, which now needs a new name because it bears absolutely no resemblance the former Hertie department store. Neukölln's local council recently announced a contest for local citizens to suggest possible names. An initial suggestion to call the building COMFORTCENTRUM apparently didn't meet with the unanimous approval of the jury.

Alexander Folz, the executive managing partner at COMFORT Berlin-Leipzig responsible for end investment said, "Perhaps the future end investor, whom we hope to identify in the final stage of the development process, will participate in the naming process." The developers have chosen the perfect time to divest the building because solid property investments are an appealing option in this current climate of unstable currency, inflationary threats and low rates of interest on long-term investments. This project is also in a class of its own in the market as a result of the redeveloped property's positioning in the micro market, its current quality of tenants and the retail units' excellent adaptability for use by third parties. The near-new quality of the building, the project's overall financial sustainability and reliable tenants are obviously the strongest arguments.