Despite cyclical headwinds and recurring commentary portraying Germany as “the sick man of Europe,” the structural fundamentals of its food-retail market remain exceptionally strong. Even under pressure from subdued economic growth, energy-market volatility, elevated interest rates, and stagnation across construction, chemicals and automotive manufacturing, German consumers continue to demonstrate record-level spending resilience in strategically essential categories.

According to the EHI Retail Institute, German households spent €204.5 billion on food retail in the most recent full year.

Online food retail accounted for only €3.7 billion of this figure — €0.3 billion less year-on-year, marking the first negative annual result in the history of the German online food sector. With major last-mile operators such as Getir and Gorillas exiting the market in 2024, the industry continues to normalise and consolidate around well-established brick-and-mortar formats.

Today, Germany remains the undisputed European leader in food retail, commanding more than 10% of the entire EU market, valued at €1.936 trillion. This figure is projected to grow to €2.4 trillion by 2028, underpinned by robust household consumption, strong asset-level liquidity, and the country’s dense, highly competitive discount and supermarket landscape.

Key Strategic Questions for Investors

Germany’s dominant position prompts several structural questions relevant for institutional investors, family offices and global capital:

1. Who captures and allocates these exceptional cash flows?
2. How is the German food-retail property market organised and capitalised?
3. Why do discounters, supermarkets and retail parks in prime micro-locations continue to outperform?
4. Which investor groups are most active in food-retail real estate — and why?
5. How do investors structure transactions, manage assets nationwide, and mitigate legal and operational complexity?

Market Perspective by Gordon Real Estate Group

This analysis leverages transaction-side and advisory insights from Gordon Real Estate Group, a German full-cycle commercial real-estate firm specialising in food-retail assets.

The company’s expertise spans:

• acquisition and sale of discounters, supermarkets and Core Retail Estate retail parks

• bank financing arrangements

• insurance solutions

• legal, technical, financial and tax due diligence

• full administrative asset management across Germany

The firm’s client base includes international Ultra-High-Net-Worth individuals and families.

In March 2005, the company marked its 20th anniversary following decades of continuous involvement in the sector.

Credits: Kaufland, Schwarz-Gruppe

According to Colliers International, one of the world’s Top-5 real estate advisory firms, private and institutional investors have allocated the equivalent of USD 1 trillion into commercial real estate across Germany over the past 25 years. Between 2015 and 2022, annual investment volumes consistently exceeded €50 billion. The all-time high was recorded in 2019, when domestic and international capital flows reached an “astronomical” €71.6 billion.

While institutional investors — including investment funds, banks and insurance groups — traditionally prioritise capital-intensive asset classes such as office buildings, logistics facilities and large-scale residential rental portfolios ranging from €10 million to nearly €1 billion per single asset or portfolio, wealthy private investors have long shown a different preference.

For high-net-worth individuals, the most favoured investment category in Germany has always been food retail properties — supermarkets and retail centres — typically priced between €3 million and €20 million, provided they are leased on a long-term basis to tenants from Germany’s Top-10 food retail groups, and ideally to one of the Top-4 market leaders.

Why exactly these tenants?

According to the German Federal Cartel Office (Bundeskartellamt), 85% of the country’s grocery retail market is controlled by just four players — the so-called Big Four, all German-rooted multinational retail groups:

Schwarz Gruppe, REWE Group, EDEKA Gruppe, and ALDI.

Collectively, these companies operate 47,000 supermarkets across more than 30 countries, employ 1.7 million staff, and generate a combined annual turnover of €420 billion (2023).

Below is a concise overview of each:

Despite being the smallest of the Big Four by global scale, EDEKA dominates within Germany, holding a 23% share of the domestic grocery market — the largest among all players.

Absolutely.

Germany’s Top-20 food retailers include numerous strong regional and national chains generating €1+ billion in annual revenue.

Beyond food, two giants of the drugstore segment — DM (ranked 5th) and Rossmann (6th) — form a powerful parallel universe of everyday consumer demand:

Credits: Kaufland, Schwarz-Gruppe

The development and modernisation of supermarkets and retail centres in Germany’s prime locations is concentrated in the hands of a small, highly influential circle of so-called “court developers” — long-standing partners of the Top-4 and other Top-20 food retail operators. These developers receive mandates directly from senior management and have often worked with the major chains for decades. Most are family-owned companies, a format deeply rooted in Germany and Western Europe; the oldest have been active for over a century, and the largest — operating across multiple EU countries — generate annual turnover of up to €2 billion.

Overall, the creation of new food retail assets in Germany involves five primary stakeholders:

• Municipal authorities, which issue (or decline) building permits;
• Food retail chains, acting mainly as tenants (and less frequently as owner-occupiers), coordinating each project to ensure compliance with their requirements for location, brand design and building specifications;
• Developer companies, responsible for securing land plots, delivering projects in close coordination with municipalities and food retail tenants, and selling completed assets to interested investors;
• Banks and other lenders — including international insurance groups — which finance projects against land and future building collateral, provided the developer can present the two “sacred” documents:
• a) a building permit, and
• b) a 30-year lease agreement with a top-rated tenant: 15 years of firm term with no early termination rights for either party, plus three 5-year extension options for the tenant (for non-food retail the norm is 12 years + 4 × 4-year options);
• Equity investors who fund the construction of the properties they intend to acquire. This structure is particularly common during periods of high interest rates. Developers benefit by avoiding excessive bank financing costs, while investors gain access to more attractive acquisition pricing, as lender margins are excluded. Investor security is ensured by Germany’s strict real estate construction laws, which prohibit advance payments: funding is released in four instalments, each triggered by the completion of a defined construction stage.

Because Germany built tens of thousands of brick-and-mortar food retail stores after WWII, new building permits in fresh locations are increasingly rare. What is far more common — and extremely sought after — is the comprehensive redevelopment or full replacement of an existing store. For investors, these projects are equally compelling: when a food retail operator decides, after 15–30 years of successful operation, to stay in the same established location for another 15–30 years, this serves as a powerful indicator of the site’s long-term resilience and viability.

Credits: EDEKA Gruppe

Experts typically distinguish four main investor groups that collectively deploy billions of euros every year into Germany’s food retail property market.

Historically, interest from banks, multinational insurance groups, investment funds, pension funds and single-asset-class specialist funds from the US, Canada, the UK, Japan, China, Singapore, South Korea and Germany in German food retail assets was relatively modest.

The reason was simple:

these global financial institutions manage vast capital pools, which are far easier to allocate in commercial real estate segments where single assets trade between €50 million and nearly €1 billion.

For years, the largest transaction ever recorded in Germany was the sale of The Squaire, a mixed-use complex at Frankfurt Airport, purchased by a consortium led by South Korea’s AGC from Blackstone Group for a staggering €940 million.

To put this into perspective:

that amount could theoretically buy 200 discounters, 120 supermarkets, or 50 large food retail centres.

Executing such a vast number of small and mid-size transactions within limited time frames would be operationally impossible even for the strongest institutional players. This is precisely why institutions traditionally preferred capital-intensive assets:

lower transaction effort, higher single-ticket allocation.

However, the exceptional resilience of German food retail assets during the global financial crisis (2008–2010) and especially throughout the COVID-19 pandemic (2020–2023) has significantly boosted institutional appetite for this asset class.

A representative illustration is the acquisition — between August 2023 and April 2024 — of 15 Netto Marken-Discount food discounters by the German investment manager GPEP. The company oversees a portfolio of €2+ billion across 450 locations in Germany and is led by former Goldman Sachs and Blackstone Group executives. The assets were acquired for GPEP’s specialised fund “Food Retail Germany II.”

The rising institutional appetite for German food retail even led to a remarkable anecdote connected directly to our own company.

At the end of 2014, competitors unexpectedly outbid a long-standing client of Gordon Real Estate Group for a new supermarket of a major chain. The property was being developed on the last vacant plot of an extremely popular retail park in one of Bavaria’s wealthiest district capitals — a park comprising food retail, cosmetics/perfumery and household goods concepts totalling just under 18,000 sqm.

When we asked the seller — a Top-10 German developer at the time — who the successful buyer was, the sales director hesitated before answering:

“Credit Suisse. They already own all the other assets on that site.”

The puzzle immediately resolved itself:

Swiss banks open accounts for clients from around the world, charge them negative interest rates, and then reinvest that capital into food retail assets next door — in Germany.

This episode made a profound impression not only on us, but also on our clients — wealthy entrepreneurs from across Europe and overseas — prompting many of them to actively deploy capital into income-producing (primarily food retail) assets in Germany. Thanks to this “setback,” we subsequently closed numerous top-tier transactions.

Not a single tenant has defaulted or reduced rent — even during the pandemic.

Germany’s leading food retail chains pursue fundamentally different strategies when it comes to owning versus leasing their supermarket real estate:

The owners of the financially powerful development groups traditionally retain a portion of the assets they build — constructed at cost — in the country’s best locations. Their tenants are members of the Top-4 or other Top-20 food retailers.

Objective: securing long-term, stable rental income for themselves and their families, independent of fluctuations in their core development business.

During market downturns, when even high-quality assets are harder to sell at fair value due to a temporary retreat of some investors, developers often hold stabilised assets (as selling at distressed prices is not an option). They simply continue collecting strong monthly rent from the food retail chains and bring the assets back to market once conditions improve.

Typically these are international owners of industrial businesses, successful IT ventures or retail companies. Unlike institutions — which rely heavily on debt — high-net-worth individuals tend to deploy discretionary equity. Their investment horizon is generally significantly longer, making them a stable, long-term capital source for the German economy.

Motivations: preservation — and modest, steady growth — of capital within a highly reliable jurisdiction, in an exceptionally resilient asset class (food retail), backed by some of Europe’s strongest and most shock-resistant tenants.

A British business partner of Gordon Real Estate Group — formerly a senior Deutsche Bank executive in continental Europe and now CEO of an asset management company representing 169 Ultra-High-Net-Worth families in London — articulated the rationale with remarkable precision (quoted anonymously):

**“Some owners of major companies — regardless of origin or the countries in which they operate — share one common problem: their family members are unable to responsibly manage either the family business or the family wealth.

Credits: Getty Images

Germany’s seven “A-class” cities — Berlin, Munich, Hamburg, Frankfurt, Cologne, Düsseldorf and Stuttgart — appear highly attractive as macro-locations for acquiring food retail assets: they offer dense populations and a high degree of liquidity, allowing investors to convert premium assets back into cash with relative ease.

However, the flip side is significant:

a large concentration of competing investors, extremely high land prices in established districts, and a substantial “metropolitan premium” that sellers automatically embed in pricing for local discounters, supermarkets and retail centres. These factors compress returns to levels that can only be described as ultra-conservative.

Many market participants still believe it is.

Yet an increasing number — including experienced institutional investors — believe the opposite. As a result, both private and institutional capital have, in recent years, shifted their focus toward B-class cities (250,000–600,000 residents), C-class cities (200,000–250,000 residents) and even D-class markets (100,000+ residents).

And for some investors, the search goes even further.

Many wealthy private investors — those who intend to hold their assets for 15+ years — often own newly built full-range supermarkets operated by EDEKA or REWE, with rental areas of 1,500–2,000 sqm, located in the historical centres of small towns of 5,000–20,000 residents, or even in classic German villages of under 5,000 residents in affluent regions of southern, western and central Germany.

Compared to metropolitan assets, food retail properties in smaller cities and affluent rural markets benefit from significantly lower land acquisition costs, resulting in noticeably higher net initial yields.

Germany is a decentralised country.

This manifests itself not only in local governments operating autonomously from Berlin, but also in the fact that per-capita purchasing power in wealthy towns and villages of Bavaria, Baden-Württemberg, Hesse or Rhineland-Palatinate often exceeds that of major cities.

A large rural town or district capital is typically surrounded by 5–10 smaller villages, each hosting only small discounters such as Netto or Penny (offering 1,500–4,500 SKUs), and none of which qualify — due to insufficient population — for a full-range supermarket such as REWE or EDEKA (15,000–40,000 SKUs).

An investor who owns a premium full-range supermarket built in a strategically dominant location — for example, the town hall square — and operating as the largest food retail store in the entire micro-region (by assortment, size and parking capacity) enjoys an exceptionally high level of long-term security.

In many cases, this security is not merely long-term but practically indefinite, given the store’s monopoly position in its catchment area and the consistently strong demand for full-range supermarkets in Germany’s prosperous non-urban markets.

Credits: Kaufland, Schwarz-Gruppe

While funds, banks and investment groups tend to favour completed food retail assets — newly built properties already handed over under the official acceptance protocol — many sophisticated private investors sometimes prefer projects still under construction, provided that:

These benefits are straightforward:

There are essentially no drawbacks, except for one nuance mentioned further below.

For investors whose primary businesses generate steady, predictable cash flow, construction-phase acquisitions offer a compelling financial advantage:

the contract price is paid in instalments over roughly 12 months — the typical duration of the construction phase of a full-scale supermarket or retail centre.

For many entrepreneurs, it is far more comfortable to pay €2.5 million four times per quarter than to transfer €10 million in a single payment upon turnkey handover.

German real estate law strictly prohibits advance payments — whether for residential or commercial property — under the fundamental principle that:

“The seller has no right to demand money for something that does not yet exist.”

As a result, construction-phase transactions are exceptionally transparent and secure:

This model protects buyers, ensures strict oversight, and makes staged acquisitions an attractive option for experienced private investors seeking both security and financial flexibility.

When a developer delivers a project that is fully financed by the investor, there is no need to obtain bank financing. This eliminates the considerable costs of bank loans — arrangement fees, interest charges during construction, collateral valuation fees, monitoring fees and so on.

Because these costs disappear, the developer is able to reduce the contract price accordingly.

For the investor, the key point is simple:

do not forget to negotiate this discount with the seller.

Projects in the design or construction phase have one important advantage over completed assets:

the investor can implement partial or full construction supervision.

Despite the popular stereotype of flawless German construction quality, reality — as in any other country — varies dramatically depending on the people involved and their attitude toward the work.

Some developers are run by dedicated perfectionists.

Others follow the principle: “Got the money? Goodbye!”

Germany’s federal law provides a five-year construction warranty, which protects the investor during the initial period of ownership. However, differences in construction quality and in the reliability of installed technical equipment inevitably begin to surface after those five years — at which point the owner becomes responsible for all repairs and replacements.

Thus, in addition to the core success factors —

To paraphrase the well-known banking principle “Know Your Customer”, any investor selecting a new supermarket or retail centre in Germany must rigorously follow the rule:

“Know Your Developer.”

This factor is ultimately more important than the choice between a completed turnkey asset and a project still under construction.

Credits: Lidl, Schwarz-Gruppe

The primary purpose of Due Diligence (DD) is to determine whether investing in a specific commercial real-estate asset is economically justified.

Both institutional and private investors typically commission — ideally from top-tier specialists — the following DD components:

1. Legal Due Diligence

Legal DD is conducted by lawyers specializing in commercial real estate.

Its core tasks include reviewing:

• the building permit,
• the lease agreement,
• and all legal documentation associated with the property.

A detailed analysis of the lease agreement clarifies the exact distribution of responsibilities between the landlord and the tenant regarding maintenance, repairs and operational costs for different components of the property’s infrastructure.

It also confirms the current legally registered owner, as entered in the Land Register (Grundbuch) at the moment of transaction.

One of the most critical tasks of Legal DD in the food-retail segment: establishing the type of ownership

A private investor will rarely be interested in an asset classified under Erbbaurecht (heritable building right), where:

• the land belongs to a third party,
• the investor owns only the building of the discounter, supermarket or retail centre,
• and pays a monthly ground lease for the right to use the land — without owning it.

Such plots are often held by the church or large institutions such as Deutsche Bahn.

They may be located in outstanding retail locations, but buildings on such land are not classic real estate — they are a form of financial investment, with land-lease terms typically ranging from 49 to 99 years.

When the land-lease term expires, and the landowner declines renewal, the building owner (or their heirs) legally loses the right to continue owning the asset on that site.

The building may be sold before expiration — but with important caveats:

1. The sale requires the consent of the landowner, who may reject the buyer.
2. Classic real-estate investors overwhelmingly prefer to own both the building and the underlying land.

Therefore, the first question an investor must require specialists to answer is:

“Is the property located on land subject to a heritable building right (Erbbaurecht)?”

After completing Legal DD, the same legal team usually represents the Buyer in the final stage of the transaction:

• participating in drafting (or at least negotiating) the purchase agreement,
• coordinating with the Seller’s legal representatives,
• and working with the notary, as notarisation is mandatory for all real-estate transactions under German federal law.

Importantly, the Buyer has priority in selecting the notary.

Cost of Legal DD, including drafting and negotiating the purchase agreement and representing the investor at notary closing:

€12,000 – €25,000, depending on the firm’s profile.

2. Financial & Tax Due Diligence

Licensed tax advisors support investors acquiring commercial real estate in Germany by calculating:

• the asset’s profitability,
• full acquisition and operational costs,
• and the tax impact of the investment.

After a successful transaction, these firms maintain the investor’s accounting, file tax returns, and represent the investor before German tax authorities.

Cost of Financial & Tax DD for a classic food-retail property up to 2,500 m²:

≈ €5,000.

Many investors attempt to save on this step, believing they can estimate profitability themselves — often correctly — based on the financial parameters provided.

However, when acquiring pre-owned or modernised food-retail assets, professional Financial & Tax DD can prevent an investor from buying a property whose actual financial performance turns out to be far below expectations.

Case Study: Netto Marken-Discount, Mannheim

In 2018, clients of our company became interested in a pre-owned Netto Marken-Discount supermarket located in the heart of Mannheim (310,000 residents; 480,000 including neighbouring Ludwigshafen — home to BASF’s headquarters).

After visiting the nearly 30-year-old property and observing exceptionally high foot traffic — mainly schoolchildren from several nearby schools and students from the local university — the investors signed a Letter of Intent (LOI), ordered full Due Diligence, and prepared for acquisition.

Their surprise and disappointment came when the Stuttgart tax-advisory firm conducting Financial & Tax DD reported that the newly signed 15-year lease (with three 5-year extensions) did not include any compensation for the landlord’s building-maintenance costs — a dramatic deviation from standard German food-retail leases.

This completely changed the asset’s pre-tax profitability, compared to the yield stated in the property’s presentation.

Why this happened:

In Germany, commercial leases typically allow the landlord to pass through a portion of annual operating and utility costs to the tenant.

The Netto Mannheim lease did not grant the landlord this right.

A brief investigation revealed the reason:

Netto had proposed financing a major modernization in exchange for a 30-year lease (15 + 3×5).

The landlord refused.

Netto then financed modernization independently — but removed from the new lease even the partial compensation rights that existed in the prior 30-year agreement.

3. No “Standard Lease Agreement” in German Food Retail

Investors entering the German commercial real-estate market must understand:

There is no such thing as a standard lease.

Two supermarkets of the same chain, just 5 km apart, may have entirely different lease structures.

This difference is driven by one factor:

the balance of negotiating power between the developer and the retail chain.

The stronger the developer (financially and reputationally),

the more landlord-friendly the resulting lease —

and all clauses transfer unchanged to the new investor under federal law.

4. Technical Due Diligence

Cost: from €5,000.

The optimal moment to conduct Technical DD is not during acquisition, but about six months before the expiration of the 5-year construction warranty.

Objective:

Identify and document as many significant structural or technical defects as possible — while the developer is still legally responsible for correcting them.

After the warranty expires, all such costs (except tenant-owned equipment like refrigeration units, shelves, displays) are borne by the property owner.

5. Location Analysis

Location Analysis helps investors:

• assess long-term potential,
• understand competitive dynamics,
• minimize risk,
• and leverage local advantages.

For newly built food-retail assets or projects under construction, investors can often skip this step (cost: €5,000 – €15,000).

Why?

Because if a developer is offering a new food-retail asset for sale, it means the retail chain has already conducted a full-scale location study, evaluating:

• economic development of the area,
• purchasing power,
• current and future competitors,
• synergy anchors (e.g., proximity to drugstores, discount stores, or full-range supermarkets).

If this analysis led the chain’s top management to sign a 30-year lease, there is little reason for the investor to doubt the location.

The Exception

If a developer builds opportunistic assets for second-tier chains in rural areas — small discounters located outside the central village square (the “prime square” of German rural planning) — the investor must be cautious.

In such cases, either:

• order an independent Location Analysis, or
• trust your instincts and walk away.

Location nuance: when an “outskirt” is not an outskirt

Summer 2024:

Our company received an exclusive mandate from one of Europe’s oldest developer groups to sell a newly built full-range supermarket on the “outskirts” of a village of 7,500 inhabitants near Hanover.

A Top-4 food-retail chain signed a 20-year lease (instead of the standard 15), with a priority renewal option — a clear signal of exceptional location quality.

Why?

Because the village is a regional centre.

Nine surrounding villages do not — and will never — qualify for their own full-range supermarket under Germany’s strict population standards.

Therefore, residents seeking the widest and best assortment will always travel to this particular store.

Notably, the retailer had already operated a supermarket on the same plot for 20 years.

Credits: Getty Images

If, after completing the full Due Diligence process and negotiating an acceptable final price, the investor decides to acquire a commercial property, both parties instruct their legal teams to finalize the wording of the Purchase Agreement, select a state-licensed Notary (under German law, the Buyer has the priority right to choose the Notary) and agree on the date of the notarial signing.

During the procedure, the Notary acts as an impartial arbitrator, ensuring that the content of the Purchase Agreement strictly complies with the letter and the spirit of German law and that none of its clauses create an undue advantage for either party.

In the presence of the Buyer’s and Seller’s representatives, the Notary reads the full text of the Agreement aloud, making final adjustments when necessary — but only with the explicit consent of both sides.

The Importance of Proper Preparation

Thorough preparation for the notarial signing is essential.

This is because the notarized Agreement is accompanied by a substantial appendix called the Bezugsurkunde, which includes:

• the Construction Permit
• the Lease Agreement for the food retail property
• architectural plans and site layouts
• the full construction specification, detailing — quite literally — every element of the building’s technical infrastructure, from the smallest screw and cable (with manufacturer and technical parameters) to the water supply, heating and ventilation systems.

While the Purchase Agreement typically runs 30–35 pages (70–100 pages on large projects), its Appendix may easily total 150–200 pages or more.

Under German law, the Notary must read aloud both the Agreement and the entire Appendix.

To avoid a marathon reading session, both parties usually issue a power of attorney to the Notary, authorizing his staff to read the Appendix the day before the official signing.

This internal reading session can last up to six hours with breaks.

An Illustrative Example

During a transaction between a Top-5 German developer and major clients of Gordon Real Estate Group, a nearly retired Notary admitted — right at the signing table — that he had forgotten to have his staff read the Appendix the previous day.

The room froze.

Representatives of both parties groaned in disbelief.

But nothing could be done:

after 1.5 hours spent reading the Purchase Agreement aloud, everyone had to sit through an additional four-hour reading of the full Appendix — start to finish.

Legal Consequences of the Notarial Signature

Once the Purchase Agreement is notarized:

• the Buyer becomes legally obligated to pay the contractual purchase price in accordance with the payment schedule defined in the Agreement;
• the rights of use — meaning the right to receive rental income — transfer from Seller to Buyer;
• the transfer of ownership is completed upon the Buyer’s registration as the new owner in the Land Register (Grundbuch).

Interim Protection: The Priority Notice of Conveyance

Between signing the notarial Agreement and the actual transfer of ownership, the Buyer’s financial security is ensured through the Auflassungsvormerkung (Priority Notice of Conveyance).

This entry in the Land Register confirms that a notarized Purchase Agreement has been signed and blocks any attempt by a bad-faith Seller to resell the property to another party.

A Key Advantage of the German System

German Notaries are connected to the centralized national Land Registry system and can instantly verify the current, legally registered owner of any property in real time.

This significantly reduces fraud risks and ensures the highest level of transactional security.

Credits: Getty Images

Although individuals (including foreign nationals) are free to purchase German commercial property, experienced investors prefer holding assets through a GmbH (German Limited Liability Company). Reasons include:

1. Liability Protection

• Individuals are liable with all their personal assets.
• GmbH liability is capped at €25,000, provided no fraudulent intent exists.

For assets such as food-retail properties — supermarkets or retail parks with high foot traffic — limited liability is essential.

2. Bank Financing (Non-Recourse)

German banks almost never provide acquisition loans to foreign individuals.

However, they readily finance purchases made by a German GmbH, even when all shareholders and directors are foreign.

This structure is non-recourse — the bank relies only on the property itself as collateral.

3. A Unique German Rule: “Contracts with Yourself”

German law allows the same person to act in two capacities:

• as the shareholder/creditor (a private individual), and
• as the borrower (the GmbH he owns).

The investor issues a Shareholder Loan (“Gesellschafterdarlehen”) to the GmbH, which purchases the asset.

The GmbH then repays the loan with interest.

For non-residents:

• interest payments are tax-free in Germany
• provided the lender (the individual) is not a tax resident of Germany
• and resides in a country where foreign passive income is tax-exempt (e.g., Monaco, Malta, UAE, Grenada, etc.)

4. Special Corporate-Tax Status for Passive-Income GmbH

Corporate tax in Germany is ~30% (15% corporate tax + 15% trade tax).

However, GmbHs engaged exclusively in passive rental income from German commercial property are fully exempt from trade tax, because German tax authorities do not classify passive rental income as “entrepreneurial activity.”

Thus, the effective tax rate drops to 15% — which, in practice, is often reduced to 0% due to:

• interest deductions from the shareholder loan,
• and annual depreciation.

Tax advisors specializing in foreign-owned investment structures ensure that interest rates remain reasonable and compliant.

Credits: Getty Images

Thanks to modern communication technologies and the absence of any need to reside permanently in Germany, the vast majority of foreign owners of German food-retail real estate keep the cost side of their investment projects to a reasonable minimum. They avoid hiring staff, renting office space, purchasing office equipment, acquiring or leasing company cars, and other unnecessary expenses.

However, a substantial list of unavoidable costs associated with the ongoing operation of commercial properties remains the responsibility of the owner.

Because Triple Net leases are practically never used in German food retail — where the concept can be summarized as “the tenant bears all operating expenses” — these obligations fall squarely on the shoulders of the owners of discount stores, supermarkets, and retail centers.

The good news is that a portion of these costs can be passed on to the tenant at the end of the financial year. Which specific expenses are transferable is governed by the lease agreement — and, as we remember, each lease in Germany is drafted individually long before the property is brought to market.

The full list of unavoidable operating expenses associated with food-retail real estate — typically amounting to 15–20% of annual rental income — consists of the following items:

Property Tax (Grundsteuer)

This tax is charged annually by local municipalities based on coefficients set by city administrations.

It can amount to approximately 5% or more of annual rental income.

Property Insurance

To ensure maximum protection of commercial buildings, Germany uses triple insurance coverage, consisting of:

1. Building insurance
2. Protection against natural disasters (floods, earthquakes, storms, hail, landslides), as well as burglary, vandalism, fire, and water damage.
3. Third-party liability insurance
4. Covers damage caused to third parties while on the premises (building, parking areas, the entire site).
5. Rental income insurance (up to 36 months)
6. Protects rental income in the event the property requires lengthy restoration — for example, after complete destruction by fire.

The cost of triple insurance for a standard 2,000 m² supermarket starts at €6,000 per year and increases depending on various factors, including location, property type, land characteristics, construction specifics, and market value.

Some types of damage — such as destruction due to military action, or glass façade insurance — are not included in the basic package (which is not entirely logical) and may be insured separately.

A Critical Note on Insurance

Even partial savings on insurance can lead to catastrophic financial losses.

A classic example dates back to the mid-2000s, when a company owning an electronics logistics warehouse near Frankfurt signed a “very attractive” insurance contract with an unknown insurer.

One night, during a severe storm, the warehouse roof collapsed.

Luckily, this happened during a weekend and no one was injured, but the merchandise alone suffered damage estimated at about €10 million.

The insurance company was unable to cover the loss and promptly filed for bankruptcy. The electronics retailer went bankrupt immediately after.

The warehouse owner incurred eight-figure losses.

Moral:

Insurance for commercial real estate should be purchased only from major global insurance groups — Allianz, AXA, Zurich, Generali — whose financial strength is unquestionable.

Property Management Services

A property management company acts as the bridge between the owner and the numerous entities involved in the daily life of a food-retail asset:

• tenants
• lawyers
• technical experts
• tax advisors
• service and maintenance providers
• municipal and state authorities

A competent management company safeguards the investor’s financial security — handling everything from scheduled technical maintenance to improving the property’s reputation and market positioning.

A poor management company merely “moves paper around” and becomes mired in bureaucracy.

The cost of property-management services in Germany ranges from:

• 3.57% (3.0% net)
• to
• 5.5% gross (4.6% net)

of annual rental income, Federal Court of Justice ruling, 9 December 2009, XII ZR 109/08.

Accounting Services

Bookkeeping services for a company that owns a commercial real-estate asset typically cost around €10,000 per year.

This includes:

• ongoing bookkeeping
• annual financial statements
• preparation and submission of tax returns

Maintenance and Service Contractors

During ownership, the investor incurs expenses related to scheduled maintenance, some of which can be passed on to the tenant.

Unplanned repairs, however, may be charged back to the developer during the warranty period, provided the investor can demonstrate that the issue qualifies as a warranty claim.

Tax Advisors, Lawyers and Technical Experts

From time to time, the owner will need paid consultations from:

• tax advisers
• legal specialists
• technical engineers

who focus on the German commercial real-estate sector.

These services are billed individually based on the hourly rates of the respective experts.

Other Costs Related to Owning Investment Real Estate

This category includes business-related expenses incurred during visits to Germany:

• airline tickets
• train travel
• rental cars
• hotels
• business breakfasts, lunches and dinners

All of these can be paid via the company’s corporate cards and deducted as business expenses at year-end.

Credits: Aldi Nord

Let us assume that, following a comprehensive Due Diligence process, a non–tax resident of Germany concludes that it is economically reasonable to acquire a newly built full-assortment food retail supermarket of a well-known chain such as REWE or EDEKA in one of Germany’s cities, at a contract price of €10 million, generating €500,000 in net annual rental income.

After registering a German legal entity — a GmbH (German Limited Liability Company) — the investor (now acting in the separate capacity of a private individual) issues a targeted Shareholder Loan (Gesellschafterdarlehen) to this GmbH for €10 million* at an annual interest rate of 3.0%. The GmbH uses these funds to acquire the asset during the notarized closing process and, from the moment the supermarket opens, begins accumulating rental income.

Out of the €500,000 annual rental income, the investor’s GmbH pays the investor €300,000 each year as interest on the shareholder loan. These interest payments are not subject to any taxation in Germany, because the investor (as an individual) is not a German tax resident.

As a result, the company’s taxable base decreases from €500,000 to €200,000.

* The €10 million figure is used for simplicity. In practice, when the contract price is €10 million, the investor typically issues the GmbH a shareholder loan of approximately €11 million, taking into account transaction-related expenses such as the Real Estate Transfer Tax (which varies between 3.5% and 6.5% depending on the German federal state), brokerage fees, notary fees, and land registry charges.

Amortization Reduces the Tax Base Even Further

German law provides for annual depreciation (amortization) of commercial buildings (non-residential stock) constructed after 31 March 1985 and used for generating rental income.

The depreciation rate is 3.0% per year, which implies that a commercial building in Germany is fully amortized over:

100% / 3.0% = approximately 33 years.

Important nuance:

Depreciation is calculated only on the value of the building, not the land on which it is built. As a rule, the land component does not exceed 30% of a food retail asset’s total contract price.

Thus, for a supermarket with a contract price of €10 million, the land value will not exceed €3 million even in the most expensive German cities.

Therefore:

• Contract price: €10,000,000
• Minus land value: €3,000,000
• Building value: €7,000,000
• Depreciation: €7,000,000 × 3.0% = €210,000 per year

As a result, the taxable base of the GmbH decreases from €200,000 (after interest payments) by another €210,000 in depreciation —

shrinking to approximately –€10,000.

Thus, the company reports a tax loss, to which annual operating expenses (approximately 15–20% of rental income) are added throughout the year.

What Happens to the “Written-Off” Money?

The €210,000 depreciation amount — or, in “real money,” around €200,000 remaining after the GmbH pays interest on the shareholder loan — does not disappear.

It simply remains in the company’s bank account and is fully available to the investor. It can be used to:

• cover the GmbH’s ongoing operating costs, or
• be reinvested as additional equity for future acquisitions.

So How Much Does the Investor Keep?

In the current environment, a foreign investor who is not a German tax resident, and who owns a German GmbH holding a €10 million food retail asset generating €500,000 in annual rental income, receives:

✔ €300,000 per year — tax-free interest on the shareholder loan
✔ €100,000–125,000 per year — tax-free cash flow left inside the GmbH
(after all expenses, depreciation, and operating costs)

Additionally, the investor becomes the owner of a high-quality, ultra-stable asset in the most populous and economically powerful country in Western Europe.

Who Does This Appeal To?

This type of highly conservative, stability-oriented investment appeals primarily to:

• internationally oriented high-performance entrepreneurs
• UHNW families
• investors generating strong cash flow from their core businesses
• individuals prioritizing capital preservation over yield

For these investors, food retail real estate in Germany is seen as a reliable instrument for preserving hard-earned capital. Rental income that at least keeps pace with inflation is considered fully satisfactory — especially in cases where the asset is acquired 100% with own funds, without bank leverage or external financing.

Credits: EDEKA Gruppe

Top 7 Requirements Investors Apply to Core Real Estate Assets

The fundamental contradiction in every investor’s search for the “perfect” investment asset is simple: perfect investment assets do not exist.

Properties with a minimal probability of capital loss and exceptionally high liquidity inevitably offer lower returns. Conversely, elevated returns in a country like Germany almost always imply lower liquidity and higher risk of total capital loss.

Institutional and private investors who understand and accept this reality apply the following criteria to Core Real Estate retail assets (and, in rare cases, Core Real Estate Plus***) when evaluating them for acquisition in the Federal Republic of Germany:

1. Long-term lease agreement with a Top-10 food retail chain, ideally from the Top-4.
2. Outstanding location with a “decades-long outlook” and sustainable catchment strength.
3. 100% tenant occupancy across the entire leasable area.
4. High construction quality, premium finishing, and first-class technical infrastructure.
5. Excellent reputation of the developer constructing or having constructed the asset.
6. High reliability, meaning a low probability of capital loss over the investment horizon.
7. Strong liquidity, coupled with an acceptable and stable level of return.

Since new assets meeting all of these criteria simultaneously are rare — and since demand from global investors for such assets always far exceeds supply — it is no surprise that the best discounters and full-assortment supermarkets in Germany’s top locations are acquired by investors who:

• make decisions quickly, and
• are prepared to pay a premium for the privilege of being first in the competitive race.

Epilogue

The investment attractiveness of food retail for capital-preservation-oriented investors is rooted in a simple fact: food and essential goods are required daily — literally for survival.

Demand for them is permanent and structurally non-cyclical.

In a country like Germany, the appeal of food retail is enhanced by factors with no global analogues — including the fact that the segment’s leading chains have survived one world war, and some (like EDEKA) have survived two.

Payment methods and delivery formats may evolve.

Consumer tastes and preferences may shift.

But it is almost impossible to imagine a scenario in which the most essential sector of Western Europe’s wealthiest and most populous country would become insolvent to the point that its strongest operators would stop paying rent to the owners of the discounters and supermarkets operating under their iconic brands.

If that day ever comes, it would mean only one thing:

the world we know has changed so dramatically that unpaid rent will be the least of anyone’s problems.

* Core Real Estate Plus assets are often mistakenly perceived as “more reliable and more liquid.” In reality, “Plus” means that at least one of the defining attributes of true Core Real Estate is missing.

Credits: Lidl, Schwarz-Gruppe