What Operating Costs Consist Of — and How Much They Amount To.
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:
Building insurance
Protection against natural disasters (floods, earthquakes, storms, hail, landslides), as well as burglary, vandalism, fire, and water damage.
Third-party liability insurance
Covers damage caused to third parties while on the premises (building, parking areas, the entire site).
Rental income insurance (up to 36 months)
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.