OTTO Immobilien Compass

CW 16 - Retail market update

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Massive impacts for operators and owners.

Patrick Homm, MA - Authorised Officer, Head of Commercial

Retail market 

Massive losses so far for retailers and owners

The first easing of restrictions on stationary trading began in Austria on the first Tuesday after Easter. After weeks of corona lockdown, during which around 12 million m² of sales space* stood idle in Austria and the domestic economy lost sales of around Euro 140 million gross* every day, smaller shops of up to 400 square metres are now being allowed to reopen. Added to this are DIY and gardening stores (regardless of their size), petrol stations and car washes, as well as car and bicycle repair shops. What does the situation mean currently, in the week after Easter, for local retailers? We put this question in the interview below to the retail experts from Otto Immobilien:

Patrick Homm MA, Head of Commercial: Even though the first restrictions are being lifted now, just under 70% of the shops and retail space in Austria were closed for four weeks and the impacts on operators and owners have been - and remain - huge. Added to this is that there's no tourism, restaurants have had to close completely, demand is constantly dwindling and supply chains are breaking. For the owners, this means just under Euro 160 million in lost rent per month, and that doesn't even take into account the losses caused by operating costs.

*Source: STANDORT + MARKT

Online retail as a second string - in the future too?

Which sectors or industries have been especially badly affected by this shutdown?

Patrick Homm: Those who have in the past focused solely on static retail and who now, in the crisis situation, have been unable to recoup some of their sales through online business. However we are also witnessing a rethink: numerous retailers have set up an online sales channel in a short space of time and are now using it to compensate for some of the lost turnover.

How are consumers responding?

Patrick Homm: People who have never ordered anything online before are now using this channel, be it for local supplies, food deliveries or textile retail. Even bicycles are currently being ordered online. The service sector has also adapted to the circumstances, with numerous tutorials being made available to customers ranging from fitness classes to consultation sessions.

So is it possible to say that developments before the crisis have been accelerated by the current situation and that this additional dimension is going to become a permanent fixture?

Patrick Homm: Yes, absolutely. It can be assumed that a large part of these new trends and habits, in addition to static retail, will also be retained in the online sector and have a lasting impact on the entire sector.

Proactive and open dialogue - better than a court case

What is your specific advice to tenants and owners in the current situation?

Patrick Homm: We recommend that, on the basis of sound legal advice from an attorney specialising in property law, a discussion should be sought and transparent dialogue should take place. We are all in the same boat, and each and every one of us would like to be able to look forward to a long-term and successful future. We therefore advise you to also consider alternative dispute resolution mechanisms such as mediation, and are happy to recommend suitable experts and also accompany mediation procedures.

So you are advising against taking issues to court?

Patrick Homm: A conversation conducted on the basis of partnership or mediation is always preferable to a court case. In court, you get a ruling, but with out-of-court conversations and a mediation process, you have the opportunity to achieve resolution.

Do you see any positive aspects of the crisis?

Patrick Homm: Yes, absolutely. Numerous retailers are now daring to look a little bit further ahead and are therefore taking the right step towards a successful future. And in addition, landlords and tenants have often "moved closer together" and in the process also laid the foundations for a common future. 

Shopping centres hit especially hard

The shutdown is affecting shopping centres particularly badly. What's the situation here?  

Patrick Homm: All of the major shopping centre operators are suffering massively with the current situation. They have been particularly badly affected by lost rent and operating costs. You should also bear in mind that the operating costs of a shopping centre are significantly higher than those on the high street.
 
How are operators reacting now? 


Patrick Homm: Even though most shops are closed, the workload in the background is increasing enormously. Currently, people are mainly busy proactively engaging in dialogue with tenants to find a mutually acceptable solution. We presently believe that it will be possible to better assess the situation in summer. 

What impacts is the corona crisis having on owners?

Stefan Braune, Real Estate Agent Retail:  They too are having to battle major losses in the form of lost rental income. This is true of both institutional owners and private owners. Planned investments in respective properties are therefore being held back in some cases and purchases as well as ongoing negotiations are being delayed. 

What's your advice to owners in this situation? 

Stefan Braune: To proactively seek out dialogue with tenants in order to find a long-term solution together, perhaps using a mediation process. Especially in the case of rental agreements with remaining terms of several years, a complete loss of the tenant is often more devastating than a temporary compromise. For large owner-managed companies, it is advisable to inform investors at an early stage and to request approval for further action in order to create a transparent flow of communication and a certain amount of room for manoeuvre.

Who are the current winners and losers in this crisis? 

Anthony Crow, MSc. Senior Real Estate Agent Retail: The biggest losers so far have been the shoe, leather goods and textile businesses, as well as the service sector in shopping districts, shopping centres and retail parks. In addition to retailers, restaurants, bars, caf├ęs and bakeries have also lost out. These sectors are witnessing drops in revenue of up to 80 % in some cases, and are fighting for survival. Companies that have in particular specialised only in static retail and are unable to generate any turnover through deliveries or online shopping are enormously affected and are expected to face severe pressure in the medium term. 

And who are the "winners" in this situation? 

Anthony Crow: The economic profiteers in the corona crisis are pharmacies or tobacconists, but also drug stores and online trade. Suppliers of pharmaceutical, medical and cosmetic products are also recording solid growth. Of course, food retailing is worthy of special mention, where, in addition to supermarket branches, delivery services for food and drug stores are also enjoying above-average demand. However this trend has already started to fall again.   The term 'trade in transition' is undoubtedly the reality from at least this point forward, and we assume that the real effects will not be felt until the summer. 

After the shutdown, green shoots of hope for the time after the crisis

What is the current mood on the retail market?

 Ditha Kristin Ritschka LL.B. (WU) Real Estate Agent Retail:  After a certain degree of shock-induced paralysis and extreme restraint, we are observing a cautiously optimistic basic attitude in the medium term, depending on the segment in question.  The unanimous opinion is that there will be a time after the crisis for the retail trade despite the even stronger online trade currently.

What might happen next?

 Ditha Kristin Ritschka: Retailers' medium-term strategy depends on how solid their business base was before the crisis and whether they were able to find a way to develop alternative sales channels in the meantime. The medium-term focus is primarily on maintaining their core business, so expansions are on hold for now. In addition, there are still some who want to push ahead with their expansion plans, as well as, unfortunately, those who are forced to (gradually) withdraw or shrink their portfolio due to the massive sales losses.

One last question - how has the day-to-day work of the retail team at Otto Immobilien changed as a result of the corona crisis?

Patrick Homm MA, Head of Commercial: Since our business as a retail service provider is strongly orientated towards the current needs of our customers, not only has our everyday work shifted temporarily due to activities from the home office, but so too has the focus of its content. Now, more than ever, we are able to help those customers who are forced to close branches by openly exchanging strategies and providing support to find new tenants quickly. Clients who have temporarily put their expansion on hold really appreciate maintaining the line of contact and being kept informed of potential opportunities. To help us do this, we are increasingly relying on virtual property presentations in the form of 3D tours and video calls in order to offer the best possible service in these unusual times.

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For questions, contact us

Our experts:

Stefan Braune, Ditha Kristin Ritschka, Patrick Homm & Anthony Crow

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