2026-10-10 11:24

Which matters more when buying a supermarket — the tenant or the location?

For the term of the lease, the tenant matters more; after it, the location. A leading chain's signature secures the income for a fixed term, usually 15 years; the location and the site's planning status decide whether a second lease follows and what the building is then worth. So the shorter the remaining lease term, the more the location weighs in the price: an excellent location cannot rescue a bad lease, nor a strong tenant a site with no future.

The tenant determines the income while the lease runs

Four groups — EDEKA, the Schwarz Group (Lidl, Kaufland), REWE and ALDI — control more than 90% of German food retail (Bundeskartellamt, 2025 data), and none of them is listed on a stock exchange. Leases for new and enlarged stores are mostly signed for 15 years, and during that term neither party can terminate by ordinary notice (see Part 3 of the series German Prime Retail).

But the name above the door is not the tenant. For EDEKA and REWE stores, the lease may be signed by a group company — at REWE usually REWE Markt GmbH, at EDEKA one of six regional companies — or by an independent merchant. The group company is a markedly more reliable counterparty (Part 2).

The terms decide as well. In 2018 our clients walked away from a Netto discount store in central Mannheim: the location was excellent, but the new lease allowed no costs at all to be passed on to the tenant. And every 10% of rent lost to costs takes 0.6 percentage points off the advertised 6.0% yield (Part 7).

The location decides whether there will be a second lease

A retailer's own location analysis is a strong signal, but only for the term of the lease. The tenant's signature says nothing about what the building will be worth afterwards, or to whom it can then be let (Part 7). That is decided by the catchment, the competition, population trends and the site's planning status. Retailers also need more space: the gap between the average store and their requirements for new sites is about 450 m² for a supermarket and 250 m² for a discounter (BNP Paribas Real Estate). If the site cannot grow, the municipality may allocate the tenant a new site in another part of town (Part 5).

The signal is strongest when tenant and location confirm each other. Near Hanover, a retailer that had traded on the same site for twenty years signed a new lease for 20 years instead of the usual 15. It thereby tied itself to the location for four decades (Part 5).

The market prices both factors together — through the multiple

One weak point is enough to drop a store out of the core class. A core-plus asset lacks at least one core attribute: a shorter remaining lease term, a slightly weaker location or a tenant outside the top tier. The discount is measurable. In 2025 prime supermarkets and discounters were priced at 18.5 times annual rent, core-plus assets at 15.5 (BNP Paribas Real Estate); on €500,000 of rent, the difference is €1.5 million (Part 12).

Exhibit 1. The further from the lease signing, the more the location decides

Stage	What decides	What to check
Fixed lease term	The tenant	Who signed the lease, the group guarantee, the cost and indexation clauses
Renewal	Tenant and location	Renewal options belong to the tenant; whether the site can take the next format
After the tenant leaves	Location and zoning	Who could replace the tenant: competition law may rule out the market leader
Sale	Remaining term and location	18.5 times annual rent for a prime asset against 15.5 for core-plus

Implications for investors

1. Check the signatory and the terms, not the name above the door. The income for the fixed term rests on the legal entity that signed the lease and on the terms written into it. Every 10% of rent lost to costs takes 0.6 percentage points off the advertised 6.0% yield.

2. Judge the location for the years after the lease. The shorter the fixed remaining term, the more the price depends on the catchment, the competitors, population trends and the site's room to expand.

3. Price the weak link. In 2025 an asset lacking even one core attribute was priced at 15.5 times annual rent instead of 18.5 — on €500,000 of rent, a difference of €1.5 million.

What to check:
• Establish which legal entity signed the lease, and request its financial statements and the group guarantee.
• Calculate the fixed remaining term, excluding the tenant's options.
• Read the allocation of costs and the indexation clause in the lease.
• Check the central-place status, the competitors and population trends in the catchment.
• Compare the site's room for expansion with the limits set by the development plan.

Sources: Bundeskartellamt, press release of 28 September 2026; BNP Paribas Real Estate, German food-retail property investment market report, Q4 2025; § 542 BGB; the series German Prime Retail, Parts 2, 3, 5, 7 and 12; Gordon Real Estate Group transaction experience.

Photo: Jan-Philipp Thiele / Unsplash

This page is general information and not investment, legal or tax advice.

Ilya Gordon