2026-10-10 11:12

Why do investors buy supermarkets in small towns?

For a higher yield from a protected position: a dominant supermarket in a small "central place" serves a population several times larger than the town itself, and planning law holds back new competitors. The chains go to such places themselves: REWE looks for sites in settlements of, as a rule, 5,000 inhabitants or more, EDEKA for a catchment of 4,000 or more. The price is a smaller pool of buyers on exit and of replacement tenants, so such a store is justified only with a long lease and a stable catchment.

Germany lives in small towns, and the chains follow the shoppers

Almost 60% of Germany's population lives in municipalities of fewer than 50,000 inhabitants, and only about a third in towns of 100,000 or more (Deutscher Städtetag, based on statistical offices' data, end of 2023). The economy is decentralised too: the headquarters of industrial leaders and family-owned Mittelstand companies are spread across hundreds of small towns (see Part 5 of the series German Prime Retail).

Food chains do not need a metropolis: their site requirements start at a few thousand inhabitants.

Exhibit 1. Chains need a settlement of 3,000–10,000 inhabitants or an equivalent catchment, not a metropolis

Chain	Inhabitants of the settlement, thousand	Inhabitants of the catchment, thousand
EDEKA (supermarket)	—	4
REWE	5	—
Lidl	5	15
ALDI Nord (standalone store)	—	more than 10
Netto Marken-Discount	—	3.5
Penny	3	10
Kaufland	10	—

Minimum requirements from the chains' expansion materials, 2026; "—" means no requirement is stated. Penny needs either condition, Lidl both.

The catchment outgrows the town, and the law restrains competitors

A district centre with 10,000 inhabitants can serve a catchment of 30,000 people or more (Part 5). The surrounding villages are too small for a full-range supermarket of their own, so their residents come to town for the weekly shop. For higher-order centres (Oberzentren) the scale is larger still. Offenburg, with 63,437 inhabitants, puts its retail market at about 275,000 people, and Coburg, with 40,970 inhabitants, its catchment at about 300,000 (town data; population from Destatis, end of 2025).

Planning law restrains competitors. A store of over 800 m² of sales area that could noticeably affect the town centre or local supply is allowed only in a core area or special zone (§ 11(3) BauNVO; BVerwG, judgment of 24 November 2005, 4 C 10.04). State development plans steer such stores to "central places" (§ 1(4) BauGB). This confers no legal monopoly: an existing store cannot demand protection from a new rival (BVerwG, decision of 10 July 2020, 4 BN 50.19).

The tenant's behaviour is a strong signal. Near Hanover, a chain that had traded for twenty years in a village of 7,500 inhabitants, the local centre for nine villages, signed a new lease for 20 years instead of the usual 15 (Part 5).

Small-town yield is paid for with liquidity

In our experience, supermarkets in small towns sell at a higher net initial yield than comparable stores in the metropolises, where BNP Paribas Real Estate's 5.00% benchmark is the floor: land is cheaper and buyers are fewer. This premium pays for real risks. For institutional investors a single store is too small a lot, so the pool of buyers on exit is narrower (Part 4). Four groups control more than 90% of food retail (Bundeskartellamt), and the choice of replacement tenants is limited. In some rural districts in the east and north of the country, the population is shrinking.

Implications for investors

1. Buy the store's position in its catchment, not the size of the town. A dominant supermarket in a "central place" serves a population several times larger than the town, and the law holds back new competitors.

2. Check the site against the chains' requirements. Thresholds of 3,000–10,000 inhabitants or an equivalent catchment show how many chains would in principle trade at the site if the tenant left.

3. Price in the lower liquidity. The yield premium is justified only if the store dominates its catchment, the lease is long and signed by a first-class tenant, and the population is not shrinking.

What to check:
• the town's status in the central-place system under the state or regional development plan;
• the size of the catchment according to the municipality, and its population forecast;
• competitors within a ten-minute drive and new stores already approved;
• whether the site meets the chains' requirements for area, parking and room to expand;
• the remaining fixed lease term, excluding the tenant's options.

Sources: Deutscher Städtetag, "Statistik der Städte", population by size of municipality as of 31 December 2023; expansion materials of EDEKA, REWE, Lidl, ALDI Nord, Netto Marken-Discount, Penny and Kaufland (2026); City of Offenburg; Coburg's economic development agency; Destatis, population as of 31 December 2025; § 11(3) BauNVO; § 1(4) BauGB; BVerwG, judgment of 24 November 2005, 4 C 10.04; BVerwG, decision of 10 July 2020, 4 BN 50.19; Bundeskartellamt, press release of 28 September 2026; BNP Paribas Real Estate, German retail investment market report for Q3 2026; the series German Prime Retail, Parts 4 and 5; Gordon Real Estate Group experience.

Photo: Jan-Philipp Thiele / Unsplash

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

Ilya Gordon