TOM 12 2023

Page 11 NEWS December 2023
On the way to an urban commercial district
Interview with Steffen Uttich and Fabian Spahn (INBRIGHT Investment)
Shopping centers remain attractive
for investors if they
move away from the retail
monoculture. This is what
Steffen Uttich (Managing Director)
and Fabian Spohn (Senior
Portfolio Manager) from
INBRIGHT Investment say
in a TOM double interview.
Their Berlin-based company
focuses on light industrial real
estate in economically strong
regions throughout Germany.
TOM: How has the world of
institutional real estate investors
developed? Things looked
very different 20 years ago,
didn‘t they?
Steffen Uttich/Fabian Spohn:
Indeed. Back then, the world
of German institutional real
estate investors was a world of
drawers: Drawer open, type of
use in, drawer closed. The portfolio
cabinet was then sorted
according to residential, office,
retail and hotel. Sometimes it
even contained something as
exotic as logistics. In any case,
a mixture was not intended at
property level. Preferably one
tenant with one use in one building
- that made the investment
clear. The weighting of the individual
types of use at portfolio
level was a strategic decision
that investors wanted to make
themselves.
This approach was no longer
up to date, at the latest with the
upheavals that the 2008 financial
crisis brought to the real
estate market. The miracle of
risk diversification slowly but
steadily found its way from securities
investments to real estate
investments. After all, it is the
individual property that ultimately
determines the success of an
investment. And that is why risk
diversification should start right
there. Risk diversification in
real estate investment therefore
means bringing many tenants
with different types of use under
one roof. Multi-tenant/multi-use
is the recipe for success that requires
two essential ingredients:
space that can be used by third
parties and a property manager
who can deal with many tenants
and different types of use. As
a result, the investor gets what
he expects: stable rental income
and thus a stable return on his
invested capital.
Steffen Uttich und Fabian Spohn Fotos: INBRIGHT
TOM: What will the medium-term
future hold for investors?
Steffen Uttich/Fabian Spohn:
It is precisely this miracle of
risk diversification that can save
many inner-city shopping centers
their status as an established
investment property for institutional
investors in the coming
years. Of course, there will also
be shopping centers in the future
that will continue to function
due to their location and
reputation with a high customer
frequency. But these will be few
and far between. The majority
will no longer be able to cope
with the challenges posed by
online retail and changing consumer
habits. For their current
owners, they need to reinvent
their shopping centers.
That sounds more difficult than
it is. Because there are actually
only two adjustments that need
to be made. The first is to open
up the shopping center space -
including the sometimes oversized
parking areas - for other
types of use. Instead of the monoculture
of retail with a fig leaf
of gastronomy, a colorful quarter
can be created in which the
original tenant target audience
occupies at most half or less of
the current space. The rest can
be filled by city logistics companies,
craftsmen with their workshops,
educational institutions,
medical professionals with laboratories
and, last but not least,
creative companies.
Such a property strategy can
open up undreamt-of potential.
For example, it can be assumed
that the neighboring districts
will be revitalized by combining
workplaces and residential
areas. Horizontal integration
makes it possible to implement
flexible working time and family
concepts without long commuting
times. At the same time,
the other types of use can generate
new public traffic, which
revitalizes the retail and restaurant
areas and generates the necessary
turnover. This approach
can already be seen in Bochum,
where a virtue is being made of
necessity with the establishment
of urban production. Today‘s
shopping centers can play a central
role in such a concept if they
combine the production and sale
of locally manufactured goods
under one roof.
TOM: What is the major challenge
in the repurposing process?
Steffen Uttich/Fabian Spohn:
The trick is to make this transformation
into a multi-tenant/
multi-use property economically
viable. However, in view of
the ongoing price correction in
the shopping center segment,
business plans are likely to provide
more and more scope for
this. A leased multi-use center
can continue to generate attractive
returns for investors, even if
the rental income is at a lower
level than in the original use. For
example, the resulting ancillary
costs, which would otherwise
have to be borne by the landlord,
fall with the vacancy. If
the downward spiral of vacancy
and inadequate footfall is interrupted
by a new mix of uses, the
benefits increase. If, for example,
rents of EUR 15 per square
meter are consistently generated
for a year in a center with
a variety of uses, this is more
profitable than a vacancy of six
months in a space rented for an
average of EUR 30 per square
meter. If high-quality services
such as doctors and laboratories
can be located, an even higher
rent level can be expected. If the
fit-out of the multi-use space is
also geared towards the highest
possible third-party usability,
the costs for future meter extensions
can be set lower - leaving
more scope for the retail space
that is desired to remain in the
center. There are also positive
effects for sustainability, financing,
valuation and exit price.
TOM: And what else is important
in this context?
Steffen Uttich/Fabian Spohn:
Above all, property management.
Successful asset and property
management of shopping
centers has always been an art
in its own right. Striking the
right balance between the right
mix of stores and the maximum
achievable rents with the lowest
possible vacancy rate is a smart
business. But it is a business of
yesterday. Developing an understanding
that new skills are
needed here can prove to be a
major hurdle. In place of the
previous retail letting artist, the
skills of a community manager
are required who can adapt to
the particularities of very different
users.
As in a traditional business
park, it is important to keep an
eye on the needs of the tenants
at all times, provide ideal space
for the respective purposes and
respond to changes in operations
during the rental period.
When it comes to re-letting, it is
important to deal appropriately
with prospective tenants beyond
the highly professionalized expansion
departments from the
retail sector. A number of lessons
can be learned here from
the operation of co-working
spaces, especially from the light
industrial market segment. It
would therefore come as no great
surprise if light industrial specialists,
with their experience in
managing different types of use,
were soon to find themselves
in the shopping center market.