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