A cross-sectional model of German high street retailing rents

This paper aims to identify the main determinants of German high street retailing rents using cross-sectional regression analysis. The German retail market primarily due to constant consumer de-mand has been becoming more and more attractive for both international retailers and interna-tional real estate investors over the last years. Taking this development into account, an increasing interest on retail property market research could be expected. Surprisingly, LINSIN 2004 was the only one investigating the German retail property market, especially retail rents, from a scientific perspective. Like other studies, such as of TSOLACOS 1995 and BROOKS/TSOLACOS 2000 or DíARCY/BROOKS/TSOLACOS 1997, Linsin found that the change of German retail rents can be mainly explained by the macro-determinants change of GDP and change of consumer demand. Hence, the surplus-theory according to FRASER 1986/1993 also holds for the German retail market. While all these results are very important for the forecast of retail rents at the macro-economic level, they neglect that retail rents are always and especially determined by the retail local demand and supply structure. Therefore according to ROBERTSON/JONES 1999 we try to identify the main determinants of retail rents in about 130 German cities using a cross-sectional regression technique. Within this approach we focus on macro- and micro-demand variables, such as population, passersby frequency and purchasing power, supply variables, such as retail sales and retail structure, as well as on variables representing spatial structure, such as centrality aspects. So far, the main findings of the model are: The retail rent is not only driven by macro- and micro-demand variables, but also by the spatial structure of the retail demand, especially by the retail centrality. From a theoretical perspective, this result on the one hand supports the surplus theory retail rents mainly depend on retail demand on the other hand it suggests that retail rents cannot only be explained by an undifferentiated demand potential but also and especially by the spatial distribution of demand and supply. From a practice investment perspective, this result means that retail property investors should not only invest in German cities which are usually in the focus of international investors, like Hamburg or Munich, but also in cities characterized by surplus meaning compared to its hinterland.