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Billion-dollar Berlin deal rings in 2016 as European commercial real estate continues hot streak

Among the first things most American expats notice about life in Europe is not only how many more retail offerings there are in city centers, but how varied the choices seem to be compared to the United States (outside of Fifth Avenue or Rodeo Drive).

In fact, the number of square feet of retail per capita is less in Europe than in the U.S. (Great Britain is No. 2.) But retailers tend to pack into center cities in Europe, as opposed to strip malls in suburban America. The Great Recession brought hard times to Europe, just as it did to all developed countries. Now, the Wall Street Journal and other publications are reporting the retail investment tide is coming in from Madrid to Berlin.

This year starts with a huge deal in the center of Berlin. Monday, Brookfield Partners LP executives announced the global Toronto-based commercial real estate company bought 17 buildings on Potsdamer Platz for $1.4 billion. Brookfield purchased the block of office and retail in Berlin’s city center in a partnership with Korea Investment Corporation, South Korea’s sovereign-wealth fund.

What a corner it is.

The news release states the deal comprises 17 buildings, 10 streets, and two squares covering a gross area of about 3 million square feet in the center of Berlin. The buildings are a mix of office (1.38 million square feet), retail (493,000 square feet), residential (271,000 square feet), leisure (446,000 square feet), and a hotel (138,000 square feet) with more than 480 national and international companies as tenants.

From the Brookfield Partners release:

A prime asset at the geographical center of Berlin, Potsdamer Platz is the meeting point of the city’s five most bustling streets in a star-shaped intersection. Redeveloped by Daimler in the 1990s and designed by an international team of world-renowned architects including Renzo Piano, Richard Rogers and Hans Kollhoff, Potsdamer Platz sits among Berlin’s historic, creative, and government districts and attracts more than 100,000 visitors every day.

This is Brookfield’s second mega Europe acquisition in 10 months following its purchase of Canary Wharf in London last March.  In a partnership with Qatar’s sovereign wealth fund, that deal was worth $3.8 billion. Brookfield was the biggest buyer of European real estate in 2015, according to Real Capital Analytics. Including the Berlin deal, the commercial real estate giant has been involved in $9.2 billion of transactions in the last 12 months.

With consumer confidence rising across the continent, retail sales in the European Union were up 3.3 percent in the third quarter of 2015 compared with the same period in 2014, according to Eurostat, which tracks E.U. economic stats.

The WSJ is reporting the volume of malls, shopping centers and other retail real estate purchased topped 64 billion euros ($67.8 billion) as of the end of November, citing data firm Real Capital Analytics.

K in Lautern Mall in Kaiserslautern, Germany

With acquisitions such as Brookfield’s Berlin deal, there are no more real estate bargains in primary markets such as Berlin, London and Paris, all of which have some of the most expensive per-square-foot lease rates in the world. So some real estate investors have moved on to secondary and tertiary markets, scooping up shopping centers in countries such as Poland, Czech Republic, Spain and Ireland.

Dispatches executives saw plenty of evidence of a retail boom during recent visits to the new K in Lautern Mall in Kaiserslautern, Germany, and to shopping streets in Amsterdam, Vienna and Berlin.

Over the most recent 12 months, retail real estate deals accounted for about 26 percent of the overall commercial property investment volume in Europe, according to Prudential Real Estate Investors. That’s up 22 percent for the same period in 2013/2014.

Investors aggressively are acquiring commercial real estate in central and eastern Europe and Poland, according to New York City-based real estate giant Cushman & Wakefield. Polish retail transactions through the first three quarters of 2015 totaled 650 million euros, and Cushman & Wakefield projects a strong final quarter, with total retail investment projected to surpass the 1.3 billion euro mark from 2013.

Houston-based Hines’s Europe CEO estimates the Liffey Valley regional shopping center in the Dublin area – bought during the recession – has increased 70 percent in value since the giant developer/management firm purchased a majority stake in the property in 2013.

Earlier this year, Paris-based Klépierre purchased the Plenilunio shopping mall in Madrid. The 70,000 meters square (753,474 square foot) property went for 375 million euros, according to the WSJ post.

Of course, with the shift to online purchases, logistics centers are an increasingly important retail real estate sector, with 15 percent of purchases in Europe made online from e-tailers, according to Colliers International, a commercial real estate firm based in Seattle.

From the Colliers website: We expect this to rise to at least 20% by 2020, which reflects similar forecasts in many other established global markets. Continental Europe is not far behind, with online sales in Germany at over 11%, followed by the Netherlands, France and Nordic markets. The rapidly evolving CEE markets led by Poland and the Czech Republic are helping to drive European online sales to over 8% of all retail activity, ahead of the US. 

That’s leading to a new trend, of course: Omni-channel shopping. Many consumers no longer distinguish between buying in a store and buying online. They get digital coupons, research an item, purchase it, then pick it up at a bricks-and-mortar storefront.

UPS in the U.S. has been working with retailers to create “ship-from-stores” retail models. So now, investors are left to figure out if they should be investing in bricks-and-mortar, logistics technology, fulfillment warehouses or some combination all these.

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Co-CEO of Dispatches Europe. A former military reporter, I'm a serial expat who has lived in France, Turkey, Germany and the Netherlands.

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