A change of times in the pedestrian zone too - Prospects for the future
Everything had, in fact, been well-prepared: after the two coronavirus years in 2020 and 2021 and devastating sales losses in inner-city retail, Germany’s pedestrian zones were expected to recover in many places this year.
The hope was that shop closures, some of which lasted several weeks, and the new isolation of the home office might have caused something like a ‘consumption backlog’. The temptations of prime locations were to recapture the undisputed status of the urban city as an phenomenal feel-good location. But everything panned out quite differently.
After the first signs of recovery in stationary retail and thus also the demand for retail space became apparent in summer of the previous year with the supposedly abating coronavirus pandemic, the consumption barometer, which monitors the general spending mood, dropped by a considerable amount again at the turn of the year, reaching an all-time low after the start of the Ukraine crisis at the end of February running now into September 22.
The war in Eastern Europe and the resulting almost ‘explosive’ energy prices have fully dampened the mood among consumers. There has now also been a loss of political confidence because the way in which important governing party officials assess the situation is repeatedly and obviously wrong, for example when they claim that there is just ‘a gas problem and not an electricity problem’ or simply advise shutting ‘flower shops, health food shops and bakeries’ to forestall imminent insolvency.
And as if all of these constraints weren’t enough to prevent consumption, weeks of extreme weather with record temperatures of around 40°C also prevented shoppers having a cool shopping experience while a widespread staff shortage led to opening hour restrictions. Some products weren’t even available in stores because of supply chain issues.
The idea of the coronavirus pandemic, which has apparently not yet reached an end, with the resulting restrictions and bans – which vary from state to state – lasting after the upcoming turn of the year 2022–23, is just another drop in the ocean when it comes to the frustrations felt in retail. Concerns about the future dominate the current social mood. If you can, you save – and only consume when it is absolutely necessary.
In the meantime, realisation is dawning on people that things will never be the way they used to be everywhere. But with so little cause for optimism, the best strategy is not to take no action, wait around or just hope for the best.
So what ‘smart advice’ is there for the future of well-functioning pedestrian zones?
In bigger cities in particular, institutional investors are now facing the decision of whether temporary compromises might be acceptable to avoid vacancies if the rent returns actually required for long-term refinancing are under threat. The planning horizons in stationary retail have in fact shortened by a significant amount. An indication of this is the now common term in rental agreements: while contracts with a term of more than 10 years were common in the last decade, the previously common additional three to five-year term options is now the basic term for newly negotiated leases, sometimes even flanked by early exit clauses in special circumstances, which can be very broadly defined.
There is therefore great uncertainty in the landlord structure in small and medium-sized towns, which tends to be predominantly private. In fact, the necessary rethink has already happened for some people. Depending on the location, accepted rent losses of 30% are now standard for new leases in prime locations as well. If you want to get even close to the rent level of previous years, rent-free periods during shop expansion, sharing in building work or changes of use on the part of the owner are often a necessity.
There will be plenty of properties available in top locations for a long time to come, meaning flexible use of a retail property will become more and more important as shifts in trends happen at shorter and shorter intervals. From shoe store to optician or from clothing retailer to hip food concept – landlords should be open to these kinds of changes of use, even if this involves investing in them, to ensure their property does not morph into permanent vacancy despite being in the best location.
It’s always problematic when, after tenant and landlord have reached an agreement on upcoming building work and how costs will be allocated, regulatory authorities put the brakes on, even if the work is in principle welcomed by the administration. Numerous examples of the more than slow process of applications for changes of use, adherence to the protection of historical buildings and monuments and other approval processes, right down to a ‘top 10’ of particularly bizarre and long-lasting approval processes could be given here. Corresponding letters to the editor of a local newspaper or direct conversations with spokespersons of all parties represented in the city council can accelerate things.
A LOOK AT THE ‘BEST’ IN THE RESPECTIVE INDUSTRY ALSO HELPS TO MAKE IT POSSIBLE TO BOOST THE ATTRACTIVENESS OF INNER-CITY RETAIL.
The ‘Stores of the year’ competition winners, which the German Retail Association [Handelsverband Deutschland, HDE] runs annually, are also moving ahead with lots of creative ideas this year in 2022. If you take a closer look at the award winners in the six categories of ‘Concept store’, ‘Fashion’, ‘Food’, ‘Living’, ‘Out of line’ and ‘Special price’, check for similarities, then filter by the four top criteria that appear to be particularly relevant across all products in the future, you essentially end up with ‘regionality & neighbourhood’, ‘individuality & special target group approach’, ‘tradition & craftsmanship’ and ‘quality & enjoyment’.
Retail space for five of the six award-winners were in the federal state capitals of Berlin, Hamburg, Düsseldorf and Wiesbaden and showed above-average performance in at least two of these criteria. Low prices as the main motivation for a trip into the city are hardly a deciding factor in the age of online trading. The furniture store in a small town in the Southern Black Forest with just 4,000 inhabitants is the only one of the six prize winners in the ‘Living’ category. It won the award because of its apartment-style display and division into four lifestyle worlds based on customer group, and faces the daily challenge of having to compensate for the lack of local spending power.
But how can customers in a district town twelve times bigger or even customers from Freiburg be motivated to travel? This principle of questioning the motivation of potential target groups applies to every single city manager and retailer in equal measure, especially if there is a general reluctance to spend because of the reasons listed above. How do I persuade consumers to drive to their own city and not to a neighbouring city, or to not shop in a competitor’s shop? Fight for spending power.
In times like these, even retail property landlords can’t escape responsibility. As an example, they can contribute to a positive cityscape by choosing their tenants and by being willing to refresh the storefront or carry out other necessary renovation work. And they can prove to their existing tenants that they are a fair partner if there is an unscheduled need for coordination. From when and to what extent this fairness towards tenants should apply is not always easy to answer.
Many landlords lack experience here and it is not uncommon for these discussions to go over-the-top in one way or the other, as professional advice is often sought only when things have already gone too far. It’s good to have experts who have gained relevant specialist knowledge on a national level over more than three decades and who can then, if necessary, bring together the right partners, each with their own individual expectations.
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