German City Center Retail Rents See Significant Increases Amid Market Recovery

Retail Rents Rebound in German City Centers

Retail rents in the city centers of German metropolitan areas have experienced a significant upturn, with an average increase of 6.0 percent recorded in 2025. This growth notably outpaces the general inflation rate of approximately 2.3 percent, signaling a robust recovery for the brick-and-mortar retail sector, according to a study by the German Economic Institute (IW). This development compensates for weaker trends observed in previous years.

The study highlights a clear recovery in retail rents, which are now rising faster than consumer prices in most locations. Furthermore, it indicates a concentration of inner-city retail activity in particularly attractive areas.

Prime Locations Command Substantial Premiums

For prime city center locations, the IW study estimates an average annual price premium of about 60 percent when compared to typical urban areas. While this premium has seen a noticeable decline over the period from 2018 to 2025, this reduction is offset for properties situated directly on the main shopping streets, particularly within Germany's seven largest cities. This underscores the continued desirability and strong demand for top-tier retail spaces.

Historically, prime retail rents saw an increase of approximately 45 percent between the new millennium and 2022. More recently, retail rents rose sharply in cities such as Frankfurt/Main, Berlin, and Düsseldorf in 2022.

Factors Driving the Market Recovery

Several key factors are contributing to the resurgence in German retail rents:

• High Demand: There is sustained high demand for retail space, especially in prime locations within major German cities.
• Improved Consumer Sentiment: A recovery in consumer sentiment and an anticipated economic upturn are positively influencing the market.
• Market Shakeout: A market shakeout has led to a decrease in the overall number of listings, alongside less dynamic growth in online retail, benefiting physical stores.
• Increased Activity: The letting market for high-street spaces has seen increased activity.
• Inflationary Pressures: Stable cash flows from rents have been supported by sharp increases due to high inflation.
• Footfall and Tourism: A return to positive levels of footfall in shopping streets and a recovery in city tourism have also played a role.

Outlook for German Retail Real Estate

The market for retail spaces in Germany is demonstrating a marked recovery in 2024. After a challenging period, leasing activity is stabilizing, indicating a positive trend in the retail sector. Prime rents in major German cities stabilized in the first half of 2024 due to high demand, with moderate rental growth projected for most cities in 2025. This positive trajectory suggests a continued upward trend for brick-and-mortar retail, particularly in attractive, central locations across Germany.