German Prime Retail

Part 10. Operating Costs: What the Rent Roll Does Not Show

The rent roll tells an investor what a supermarket earns. The lease tells them what it costs — and the two documents rarely receive equal attention. In German food retail the difference is material: leases are seldom "triple net", and the obligations that stay with the landlord, above all roof and structure, do not appear in the yield a seller advertises. This part sets out the cost lines an owner should budget for, which of them can be passed on to the tenant and how professional buyers price the rest.
Key takeaways
• In our experience, most German food-retail leases are "double net": the tenant pays most operating costs; the landlord keeps roof, structure and certain external areas.
• The lease decides which costs the landlord can recover, within the limits the courts set for standard-form clauses: in commercial leases, property tax, insurance and even management costs can be passed on if the lease names them clearly.
• In our experience, a landlord's non-recoverable costs for a new-build supermarket with a modern lease come to roughly 8–15% of net rent; older stores and weaker leases cost more.
• Professional buyers price what is left after these costs: in our Part 11 example, a store marketed at a 5.0% yield earns about 3.9% on the total outlay once non-recoverable and acquisition costs are deducted.

The lease, not a statutory catalogue, allocates operating costs

In commercial leases, German law leaves the allocation of operating costs largely to the parties. Unlike residential tenancies, there is no statutory catalogue that limits what a landlord may pass on; what matters is that the lease names the cost types clearly. The Federal Court of Justice has held, for example, that a standard-form clause charging a commercial tenant "the costs of commercial and technical property management" is valid even though it names no amount and sets no cap (BGH, 9 December 2009, XII ZR 109/08).
The typical food-retail lease is "double net" — a term that means more in German usage than in American. The tenant pays for the interior, its own installations and most operating costs; the landlord remains responsible for "Dach und Fach" — the roof and the structure — and often for the car park surface and external utilities. Fully triple-net leases, common in the United States, are rare in German food retail, and the law is one reason: a standard-form clause can shift maintenance and repair to a commercial tenant only for damage arising from the tenant's use or risk sphere (BGH, 6 April 2005, XII ZR 158/01). Roof and structure generally lie outside it, so a pre-printed clause handing them to the tenant deserves a lawyer's second look.
Two stores of the same chain a few kilometres apart can carry materially different cost allocations, because every lease is negotiated individually, usually long before the property is offered to investors. In the Mannheim case in Part 7, a newly signed Netto lease let the landlord recover nothing at all.

Tenants usually pay most operating costs; landlords keep roof and structure

Exhibit 1. Property tax and insurance usually pass to the tenant; roof, structure and the GmbH's own costs do not
Cost line
Typical treatment in food-retail leases
Comment
Property tax (Grundsteuer)
Usually recoverable
Levied by the municipality on a value set by the tax office; reassessed under the 2025 reform (see below)
Building insurance
Usually recoverable
Fire, storm, hail, water; natural hazards (flood, heavy rain) often by add-on
Owner's liability insurance
Usually recoverable
Damage to third parties on the site
Loss-of-rent insurance
Usually recoverable
Covers rent during reinstatement, typically 12–36 months
Property management
Recoverable only if agreed
In our experience 2–4% of net rent plus VAT; valuers allow 3% of gross rent (ImmoWertV, Annex 3)
Roof and structure maintenance
Landlord
The main non-recoverable item; budget a reserve
Car park, external areas
Varies
Resurfacing, lighting, drainage — check the lease
Accounting and tax returns of the GmbH
Landlord
About €8,000–12,000 a year for a single-asset GmbH
Legal, technical and tax advice
Landlord
As needed, at hourly rates
Cost figures are typical ranges from our experience, as of October 2026.

Property tax after the 2025 reform

The reform's effect on a supermarket depends on the state. Since 1 January 2025, property tax has been charged on values assessed as at 1 January 2022. Under the federal model, used by most states, non-residential property is valued on a cost basis, and in many municipalities the burden shifted towards residential property. Baden-Württemberg taxes land value alone, so a single-storey store with a large car park — the typical supermarket — is taxed on its plot, without the 30% reduction granted to mainly residential property. North Rhine-Westphalia lets municipalities set a higher multiplier for non-residential property.
A recoverable increase still matters to the landlord. Where the lease passes the tax on, the tenant bears the change — but it raises the store's occupancy cost, which is what a retailer weighs when the lease comes up for renewal.

Three covers are standard; the insurer's financial strength decides their value

A German commercial building is normally insured three ways: building insurance against fire, storm, hail and water damage, ideally extended to natural hazards such as flood and heavy rain; owner's liability insurance; and loss-of-rent insurance, which pays the rent while a destroyed building is rebuilt. In our experience, the combined premium for a 2,000 m² supermarket starts at around €6,000 a year and rises with location, construction and value. Glass, including large glazed façades, usually needs its own policy, and war damage is excluded from property policies as standard.
The quality of the insurer matters as much as the policy. In the mid-2000s, the owner of an electronics logistics warehouse near Frankfurt chose an unknown insurer for its low premium. One weekend night a storm brought the roof down. No one was hurt, but the damage to the stored goods alone was estimated at around €10 million. The insurer could not meet the claims and filed for insolvency; the tenant, an electronics retailer, followed; the owner was left with an eight-figure loss.
The risk is not historical. In March 2025 ELEMENT Insurance AG, a Berlin insurer with about 320,000 policies including residential building cover, entered insolvency proceedings. Germany's statutory rescue funds protect only life and health policyholders; a fund for property insurers passed the Bundestag only in September 2026 and is due to start in 2027. Choose groups of proven financial strength, and ask which company carries the risk: ELEMENT often sold under its partners' names.

Good management earns its fee where owners rarely look

A good property manager runs the maintenance calendar, enforces warranty claims against the developer within the deadlines, prepares the annual service-charge statement and protects the asset's value; a poor one merely forwards paper. The manager is the owner's link to the tenant, the service providers, the authorities and the advisers. Indexation shows the difference: in our experience, some clauses raise the rent only from the month after the landlord's written request, so a threshold that passes unnoticed is rent lost for good.

Business travel is deductible; private elements can be taxed as dividends

Foreign owners rarely need staff, offices or company cars in Germany. Travel to inspect the property, meet the tenant or attend the closing is a business expense of the GmbH where it serves the business, subject to two cautions. Meals with business contacts are only 70% deductible, and only if the occasion and the participants are documented (§ 4(5) no. 2 EStG). Any private element of a trip paid by the company can be treated as a hidden profit distribution: not deductible for the GmbH and taxed as a dividend in the shareholder's hands (§ 8(3) KStG).

The warranty clock decides when roof and structure costs reach the owner

During the five-year warranty period that follows acceptance of a new building (§ 634a BGB), defects are the developer's responsibility — provided the owner holds the warranty claims (Part 6) and stops the limitation clock in time. Under the German Civil Code a letter listing defects does not stop it on its own; Part 7 sets out what does, and why a technical inspection six months before the warranty expires is one of the best investments an owner can make. Once the warranty expires, roof and structure are for the landlord's account.

After costs, a 5.0% marketed yield earns about 3.9%

An institutional buyer does not value the rent; it values what is left of it. German valuation law sets standard allowances for this deduction (Annex 3 of the Immobilienwertermittlungsverordnung, ImmoWertV): 3% of gross rent for management, 4% for the risk of lost rent and, for a self-service food store whose landlord carries roof and structure, maintenance at half the residential rate — €5.85 per m² a year at 2021 prices, indexed to consumer prices since. For a store let at €12 per m² a month, that comes to roughly 11–12% of the rent (our calculation), inside the 8–15% range we see in practice; Part 11's example uses the top of it.
The seller's yield and the institution's describe the same building; only the second describes what the money earns. A store offered at 20 times its annual rent is marketed as a 5.0% yield. Deduct 15% for non-recoverable costs and it earns 4.25% on the price; add acquisition costs of about 9.4% (Part 11) and the net initial yield — the figure institutions compare — falls to about 3.9%. The 5.0% prime yield quoted in Part 1 is a net initial yield — and it belongs to stores priced at up to 18.5 times rent (Part 12), not 20.
Professional owners also treat roof and structure as a liability with a date, not a surprise. Roof membranes, car park surfaces and building services have replacement cycles measured in decades, and a long hold will meet them. Setting cash aside each year inside the GmbH, from the surplus described in Part 11, turns an eventual six-figure bill into a planned cost. The reserve brings no tax relief in advance: German accounting rules allow no provision for future maintenance (§ 249 HGB), and works within three years of purchase that exceed 15% of the building's cost must be capitalised rather than deducted (§ 6(1) no. 1a EStG). A buyer who has not budgeted for the roof has, in effect, paid too much for the building.

Implications for investors

1. Read the cost allocation of each lease; do not assume a chain standard. Two stores of the same chain a few kilometres apart can carry materially different cost allocations, so establish which costs the landlord can recover and who carries roof, structure and the car park.
2. Compare stores on the net initial yield, not on the marketed yield. Deduct non-recoverable costs — 8–15% of net rent in our experience — and acquisition costs first; on that basis a store marketed at 5.0% earns about 3.9%.
3. Budget for roof and structure from the first year. Commission a technical inspection six months before the warranty expires and set cash aside inside the GmbH each year; the reserve brings no tax relief in advance, but it turns an eventual six-figure bill into a planned cost.
When reviewing a lease, check:
• the list of recoverable cost types and the annual service-charge statement procedure;
• whether management costs, insurance and property tax are recoverable;
• the exact split of maintenance — interior, roof, structure, technical installations, car park;
• who owns and maintains refrigeration and other operating equipment;
• the most recent service-charge statements and any open disputes;
• the new property-tax assessment under the 2025 reform, and who bears an increase;
• the insurer behind each policy, its financial strength and the indemnity period of the loss-of-rent cover.
Sources: BGH, judgments of 6 April 2005, XII ZR 158/01, and 9 December 2009, XII ZR 109/08; BGB §§ 204, 212, 307, 535, 556, 578, 634a; HGB § 249; EStG §§ 4(5) no. 2, 6(1) no. 1a; KStG § 8(3); ImmoWertV, Annex 3; BewG and GrStG (federal model); Landesgrundsteuergesetz Baden-Württemberg; North Rhine-Westphalia act on differentiated property-tax multipliers (2024); BaFin and Verbraucherzentrale Bundesverband on ELEMENT Insurance AG (2025–26); VSAAG as adopted by the Bundestag on 25 September 2026 (Bundesrat printed paper 558/26); Gordon Real Estate Group market observations, 2026.
Photo: K. Mitch Hodge / Unsplash
Cost figures are typical ranges from our experience and depend on the individual property and lease. This article is general information and not legal or tax advice.
2026-10-09 12:03