Germany’s Promising Discount Retail Market Lures Behringer Harvard

By: Barbra Murray, Contributing Editor

With the recession having taken a chunk out of consumers’ pocketbooks around the world, the retail real estate market has been struggling for quite some time, and the situation is no different in Germany. However, the discount retail sub-sector is thriving in the country, and Dallas-based commercial real estate firm Behringer Harvard has positioned itself to capitalize on related development opportunities with the recent formation of Behringer Harvard German Retail, a joint venture with Hanover, Germany-based real estate investment and management company Rahlfs Immobilien GmbH.

The joint venture is kicking off with investments in six new discount retail-anchored assets in the Hanover region, with Behringer Harvard acting as mezzanine lender and equity partner, and Rahlfs handling leasing and property management responsibilities and overseeing construction activity. Three of the properties have already reached completion, while the remaining three are in the construction phase as build-to-suit destinations and are on target to deliver within 12 months. The portfolio’s list of discount retail tenants centers on grocery stores, but also includes clothing chains and health and beauty product stores.

The six properties are just the beginning. Behringer Harvard German Retail is planning a big increase in the size of its portfolio during the joint venture’s estimated five-year holding period.

While, according to analysts such as Deutsch Bank Research, Germany officially emerged from its recession in August, real estate industry experts predict that there will be even greater demand in the discount retail market. Discount retailers accounted for 72 percent of the 400 new retail leases signed in Germany in July, property investment firm Real Returns observes in its Fact Sheet report for autumn 2009. And with regard to grocery stores in particular, discount stores presently account for 43.2 percent of grocery sales, and that figure is expected to climb to 50 percent in the near future.

“Properties let to German discount retailers, an asset class previously overlooked by the international investor, provide income generated by blue chip tenants who dominate Germany’s €360 billion Fast Moving Consumer Goods market,” Real Returns notes in the report. “An investment in a discount retail property is one of the few investment options offering long-term viability and low levels of investor risk.