Department stores in Germany Status I Quo I Vadis 01 Foreword Quo vadis, department stores? The as well as the competition structure The study is particularly intended for title of this study reflects the prevailing and potential demand in the retail and practical use in everyday work. The body uncertainty surrounding the future of property sectors. of data presented can also act as an the department store. For decades, essential reference work. department stores have represented This is why, in summer 2015, Savills local retail leaders and main draws in and Stadt+Handel compiled store data We hope that the study will assist you with many town and city centres. In recent on Karstadt and Kaufhof properties, your discussions and decision-making times, however, department stores in analysed this data and evaluated it processes. Germany have lost significant market via a scoring process. The outcome share and whether the store closures is the present study, which provides over the last decade should be a bird‘s eye view of the situation and regarded as consolidation or as erosion structures the department store stock is a matter of perspective. in terms of location and property- related conditions. The scoring results Both the type of property and quality and tools presented in the study can be of location cover a broad spectrum. used by owners and retailers, investors From flagship store to local supplier: and developers and even local who will „draw the short straw“ in the authorities and expansionists to gain Ralf Beckmann Silke Wittig competition against other formats a good impression of future options Stadt + Handel Stadt + Handel and the Internet? Where does strong for the individual stores. This not only positioning succeed? Sweeping refers to owners and purchasers of judgements regarding the department department store properties but also store as a retail format are always surrounding properties, which can be inadequate. The differences are simply affected either positively or negatively too great both in respect of the quality by the fate of nearby department Jörg Krechky Matthias Pink of individual locations and properties stores. Savills Savills Content 04 Executive Summary 06 1 I Introduction 08 2 I The department store sector in Germany 22 3 I German department stores compared 46 4 I Quo vadis, department store? Five theses 03 Executive Summary Where next for German department approximately €9.5bn of investment A total of 46 department stores make stores? Once regarded as „cathedrals during the same period. A total of up the group of „frontrunners“, which of retail“, the department store is 193 department stores have changed have the highest scores and, thus, the experiencing a prolonged period of hands, almost half of which were part best conditions. This group includes crisis as a retail format in Germany. A of portfolio transactions. the three premium stores of the review of the current situation in the KaDeWe Group as well as both stores retail sector illustrates that the situation An analysis of transaction activity in Mannheim. Galeria Kaufhof operates for department stores is not hopeless demonstrates that department 24 of these stores while 22 belong but there are many challenges to stores can represent an appealing to Karstadt. The „midfield“ group overcome in order to emerge from the investment for all types of investors. comprises a total of 62 department current crisis. Online retail continues to For conservative investor groups, store properties with mid-range scores. exert pressure on stationary operators such as insurance companies and These include 33 Kaufhof department in the sector, mainstream prices are pension funds, department stores let stores and 29 Karstadt properties. becoming increasingly unattractive on long-term leases in 1a locations are Finally, 53 department stores make and department stores are not alone particularly interesting since they offer a up the „laggards“, which are generally in having to go to ever greater lengths stable rental yield and a high probability characterised by less favourable to attract customers through the of capital preservation. Opportunistic conditions in terms of property and doors. The crisis and ultimate fate of investors and developers, on the other location. Galeria Kaufhof operates 29 department stores not only affects hand, are more interested in properties of these stores while the other 24 are consumers, municipalities and, of with short lease terms and uncertain Karstadt department stores. course, the department store retailers futures since this creates opportunities themselves, but also property owners for re-positioning and the associated Upon analysing the scoring results, and investors. The department store value-add potential. it is immediately apparent that the retail format is intrinsically linked frontrunners are predominantly with its structural envelope. This is Against this background, and taking situated in major cities, whereas the not least attributable to department into account the close relationship laggard stores are over-represented in stores‘ unique capability to use several between the department store as smaller towns and cities. No town or storeys (more than five on average) a retail format and property type, it city with 50,000 or fewer inhabitants as sales space. If a department store is essential to consider the current appears among the frontrunners, closes, conversion of the department situation and future viability of the while almost three quarters of stores store property to an alternative use is remaining department stores. The in such locations are found in the the only option in the vast majority of outcome of such deliberations will laggard group of the scoring. Thus, cases. determine the extent to which a the scoring results suggest that the department store property is of conditions for the future viability of Today, there are 161 remaining free- interest to completely different department stores tend to be worse in standing department store properties types of investor. Furthermore, an medium-sized towns and cities than in Germany occupied by either Galeria understanding of the current conditions in major cities. However, this places Kaufhof or Karstadt. These have of a department store will be helpful department stores in such towns and an average lettable area of around to local authorities as well as other cities in a predicament. On the one 17,900 sq m and an average sales area stakeholders. Despite the general crisis hand, the less favourable conditions of some 14,400 sq m. Department facing the retail format, the German restrict the size of the department store stores are, therefore, among the department store is highly diverse and while, on the other hand, history shows largest retail properties both in terms each property has its specific strengths that a department store should have a of footprint and usable floor area. This and weaknesses. minimum sales area of 8,000 sq m in characteristic, combined with their order to successfully fulfil its role as a normally central locations in town and The scoring system, which evaluates full-range provider. Consequently, the city centres, makes department stores the macro and micro-locations as outlook for the future viability of such a unique property type. Around three well as the quality of the 160 or stores is less auspicious. To assess quarters of all properties are situated in so department store properties in whether the existence of any stores A locations. Germany, covers such strengths and is under threat, and which stores they weaknesses. The results of the scoring might be, requires consideration of It is not least the high-quality locations allow for conclusions as to the future the specific competitive conditions in that make department stores appealing viability of the individual department each location. Properties in competitive to investors. Department stores have store locations in the context of these markets such as Gießen will face accounted for inflows of around conditions. Thus, property investors, greater challenges than those that €6.2bn, more than 10% of investment local authorities and department store enjoy the status of local retail leader in retail property, since 2009. By way retailers themselves, as well as other such as in Iserlohn. of comparison, hotel and logistics stakeholders, can use the results as a properties have each accounted for guideline or basis for decision-making. Executive Summary The scoring results also show that It is precisely this structure created most department stores are situated by the discovery of location and in good to very good micro-locations. property-related strengths and Only few properties are situated weaknesses that makes the scoring in genuinely poor micro-locations. a valuable instrument in practice. Furthermore, the spectrum is narrower Property investors, local authorities in this respect than that for the quality and other stakeholders can use the of macro-locations and properties. scoring to prepare, reach or validate Thus, department stores differ decisions. Furthermore, combined with relatively modestly in the quality of retail expertise and knowledge of the their micro-locations but considerably property market, the scoring results in terms of how these locations have provide a basis for venturing a number developed. In particular, it can be of theses on the future of the „old observed from the scoring results that lady“ of retail over the coming years. micro-locations with generally below- There is much to suggest that some average performance in the scoring department stores will continue to lose have fared much worse in terms of their magnetic effect going forward attractiveness in recent years, which while others will even close. Properties is manifested in declining rents. On in medium-sized towns and cities the other hand, those micro-locations with fewer than 100,000 inhabitants with above-average location quality are particularly under threat, as are frequently show rising or at least stable those situated in unfavourable micro- rental levels.