More and more, supermarkets are digressing into the real estate business. Stephanie von Keudell interviewed Stephan Koof, Germany Expansion Manager of the Rewe Group, and Alexander Thurn, Property Manager at Lidl Deutschland, and asked them to explain where the trend toward “living above a supermarket” is headed.
Rental apartments above supermarkets have long been an interesting option for REWE and Lidl
How does Rewe see the trend toward “living above a supermarket”?
Stephan Koof: The Rewe Group has always done this, particularly in major cities such as Berlin. Since the majority of our existing network is in leased properties, however, this has hitherto been handled in cooperation with the respective landlords. As a rule, building apartments on top of existing buildings is impossible due to load-bearing limitations, so this is a subject that comes up for the most part in connection with new construction projects.
For a number of years now, Rewe Group has also been developing its own properties for REWE and PENNY and has thus been in a position to control the combination of retail and residential spaces.
How long has “living above a supermarket” been an area of interest for Lidl?
Alexander Thurn: For quite some time, we have been considering the issue of how to realize new branches in densely populated cities that are short of space. In locations of this type, it may make sense to construct high buildings, which is what we have already done in more than ten cases, for example in Stuttgart and in the Prenzlauer Berg area of Berlin.
Rental projects with communities, partners and as a sole owner
Do you manage these projects on your own or rely on partners?
Koof: In the vast majority of cases, these projects are developed in a partnership either with hotel or residential project developers. Our partners know their market, the level of demand, and the options that exist. Almost always, the relevant communities are also involved: it is often their ideas regarding the development of their urban area that lead to the creation of such projects.
The motivation for such projects is frequently to be found in legal building restrictions that make it difficult to create large markets in urban surroundings. Building a market with apartments above is a win-win situation for the community, the apartment developer (ground-floor apartments are hard to sell and to let) and for us. However, the opposite case also occurs, namely that operators of planned budget hotels approach us because they are looking for a way to use the area on the ground floor, which is hard to market as hotel rooms.
Thurn: Some of both – that depends on the scope of the project and the range of intended uses, for example as residential apartments, student apartments, assisted living, kindergartens or hotels. We keep some properties in our portfolio and let them ourselves. We also like to develop very large or special properties with partners, and then sell them once the building permits have been issued or they have been completed. In these cases, we proceed differently depending on the location involved.
“No one is voluntarily going to build his dream house on the roof of a supermarket. We […] can imagine many things involving student housing, hotels or even homes for the elderly or assisted-living facilities, depending on the location.”
Opportunities and limits of supermarket apartments
What market segments come into question?
Koof: Such projects are needed primarily in mid-sized cities and metropolitan areas with unfilled demand for residential space. We are not kidding ourselves: no one is voluntarily going to build his dream house on the roof of a supermarket. So we are not fixated on the standard two-bedroom apartment, but can imagine many things involving student housing, hotels or even homes for the elderly or assisted-living facilities, depending on the location.
What locations are especially attractive?
Koof: Basically, the concept is suitable for inner-city locations where residential space is scarce, but less central locations that are well integrated in public transit networks also come into question if, for example, a hotel is developed above a supermarket in a trade-fair location. Thanks to our group’s diverse range of market sizes, which start at as little as 500m², we can develop attractive solutions for widely disparate locations.
“That is why ‘living above a supermarket’ will remain a highly specialized module used for expansion in metropolitan areas.”
What are the concept’s limits?
Thurn: Generally, our business and our passion is to be retail grocers, and so our top priority is to expand local supply for our customers. That is why our ‘metropolitan concept’ does not work everywhere, but is a very special solution for individual locations in densely populated metropolitan areas with unfilled residential and space demand. The concept is demanding and must meet the highest technical and legal requirements in order to satisfy the various interests of retailers, such as delivery and parking areas, and of residents, for example regarding quiet hours at night. That is why ‘living above a supermarket’ will remain a highly specialized module used for expansion in metropolitan areas.