Declining sales, online competition, and the bankruptcies of

the Praktiker and Max Bahr chains – 2013 was anything but

an easy year for the DIY sector. Yet investors signal resurgent

interest in this type of property. How does this add up? This

first edition of Market Report Retail that Redos Real Estate will

publish on a quarterly basis in collaboration with BBE Retail

Consulting and IPH Retail Property lets you take a closer look

at the retail segment of DIY stores.

DIY stores are looking back on a turbulent past as investment as-

sets. Once trading at gross rent multipliers of 12 to 13.5 times on

a comparatively tranquil market, DIY properties began to change

hands more rapidly in a rash of sale-and-lease-back transactions

during the years 2006 and 2007. Driven by the market entry of for-

eign investors, prices suddenly skyrocketed in 2005 and 2006, be-

fore investors lost interest on the market just as quickly. Then came

2013, and with it the blow the market was dealt by the insolvency

of Max Bahr and Praktiker.

As always, however, the setback implied the opportunity of trying a

fresh approach. The good news being: The DIY sector is undergo-

ing a metamorphosis. With the market shake-out duly completed,

investors take a favourable view of the segment again. I‘m inclined

to agree with them, as I do see plenty of opportunities for the indus-

try in 2014. The collapse of Praktiker turned out to be – admittedly

with some delay – a wake-up call for retailers and investors both.

As far as I can see, the market has been cleansed by the Praktiker

bankruptcy. The cards are being reshuffled by the retailers, and

market shares are being redistributed. Rather than marking their

territory through a price battle, though, the remaining retailers have

for some years now prioritised customer service and specialised

assortments – a move well received at the customer end.

Now it is up to the investors to quickly find new tenants for the

former Max Bahr and Praktiker venues. Any viable option is worth

considering: both the continued use as DIY stores with new

tenants, and potential reutilisation alternatives. With a cost price

of approximately 600 to 1,000 euros per square metre of lettab-

le area, DIY properties are several times cheaper than other retail

property types, and thus present low-cost entry opportunities to

investors. At the same time, DIY stores often pay handsome re-

turns, more so than supermarkets, for instance. Gross rent multip-

liers have meanwhile rebounded and stabilised on a level of around

13 to 14 times, provided the investment asset is situated in a good

location and let to a solvent tenant. Ample reason for investors to

commit or recommit themselves in this market segment.

DIY Stores Rekindling Investor Interest

EDITORIAL

realestate

Focus: DIY Stores1I2014

in cooperation with

Market Report Retail Trade

Jointly published by Redos Real Estate together with BBE Retail Consulting and IPH Retail Property

Market Report BBE/IPH

2

In its latest survey of DIY store struc-

tures, the Gemaba Society for Mar-

ket and Business Analysis counted a

total of 2,198 DIY stores in Germany,

adding up to a gross retail area of

around 13,310 million square metres.

This implies a decrease in the num-

ber of locations by eight percent year

on year, while the retail area shrunk

by around seven percent. The reason

for the decline is the bankruptcy of

the Praktiker / Max Bahr chains, as

around 320 DIY stores went out of

business. Yet even though the total

number of stores has hit an eight-ye-

ar low, sales are higher than in previ-

ous years. Also striking is the increase

in retail area per store – this being a

trend that is likely to continue in the

future.

2014: Reshuffling Market Shares

and Floor Area Percentages

2013

2.198

Number of hardware and DIY stores

Retail area (indoor) of hardware and DIY stores (in million sqm) Source: gemaba

Source: gemaba

2.460 2.438 2.428 2.421 2.390 2.381 2.380

12,2 12,3 12,4 12,6 12,7 12,8 12,9

2006 2007 2008 2009 2010 2011 2012

Development of the DIY store sector in Germany

Sales totalling 18.06 billion euros, a year-on-year decrease by

2.9 percent, were reported by the BHB Retailers‘ Association for

Home Improvement, Building and Gardening for the DIY sector in

2013. Several reasons come to mind why the German DIY tra-

de was unable to match the sales performance of the previous

year in 2013. One one of reasons was poor weather at the start

of the year, which had a massive impact on sales, especially in the

gardening goods categories. Another event clearly impairing the

year-end result for 2013 was the bankruptcy of the DIY multiple

Praktiker / Max Bahr. The prevailing industry sentiment for the year

2014, however, is cautious optimism. While the sector as a whole

is unlikely to experience growth, some of the market players will

see their sales soar, or so the BHB believes.

18,6

2011 2012

18,71 18,6

2006 2007 2008 2009 2010

Gross sales of hardware and DIY stores (in bn €) Source: BHB

17,88 17,64 17,55 17,918,43

Development of the DIY store sector in Germany

2013

Upward Trend Checked in 2013

12,0

Market Report BBE/IPH

3

Online retailing, which has come to play a

very prominent role in other segments of

the retail trade, has had a negligible impact

on the DIY sector so far. This is unlikely to

change any time soon, as BBE estimates

the online share of the market to remain

between five and ten percent in the co-

ming years. For the sake of comparison:

The online share of the turnover in consu-

mer electronics retailing might rise to 35

percent during the same period. The slow

growth of online sales in the DIY segment

is not least explained by delivery issues, for

instance when it comes to live plants. Add

to this the elevated need for professional

advice. Any effort to make a difference in

the competition with e-commerce should

therefore prioritise a consistent expansi-

on of the sales and advisory services in

the stationary retail sector. Among those

market players who have already made a

name for themselves with their high service

and product competence are Obi, Horn-

bach, and toom.

OperatorNumber of former Prakti-

ker / Max Bahr sites taken over

Use

Bauhaus 27 DIY store

Hagebau 16 DIY store

Toom 12 DIY store

XXXLutz 12 Furniture store

Globus 8 DIY store

OBI 6 DIY store

Poco Domäne 5 Furniture store

Hornbach 5 DIY store

E-Commerce Poses Limited Threat

Interview with Björn Biermann

4

Björn Biermann is Head of Real Estate at toom Baumarkt, one of Germany‘s

leading DIY store multiples. Biermann‘s sphere of ownership includes the

departments Expansion and Construction, Energy Management, as well as

Contracts and Legal. He talked to us about the ramifications that the

bankruptcies of Praktiker and Max Bahr has had for the DIY sector, about his

company‘s plans to expand, and about forward-looking DIY store concepts.

Mr Biermann, how did the collapse of the Praktiker and Max Bahr

chains impact the industry?

With a view to the ongoing elimination of competition and the glutted

market, it is safe to say that the market consolidation was a good

thing for the industry, and had been long overdue. The industry is still

in the restructuring and repositioning phase that was initiated by the

insolvency of the two competitors. So it would be too early for any final

assessment of what the attendant market changes will bring. Import-

ant for us to know is that the bankruptcy of the Praktiker DIY chain

has done little to tarnish the reputation of the hardware and DIY store

industry in general. In the eyes of the customers shopping at hardware

and DIY stores, the bankruptcies are to blame on poor management

and a misguided pricing policy instead. These are causes that custo-

mers associate exclusively with the company at hand, and that they

do not consider an issue plaguing the DIY store sector as a whole.

What do you expect the future to bring for the former Praktiker

and Max Bahr locations? Could you quantify the percentage of

properties that face obsolescence?

The race for the premium locations was already decided in December.

We are quite happy with our final score: We secured 20 top locations

for our business. What we are after at this point is the strategic densifi-

cation of our network of branches. We assume that around half of the

former Praktiker / Max Bahr venues will find a buyer. The future of the

other sites will have to be settled outside the confines of this sector.

Site selection criteria play an important role here. And the willingness

of a given municipality to create new planning parameters also plays

a key role. I personally believe that most sites qualify for development.

What does the current expansion strategy in the DIY store seg-

ment look like?

It remains to be seen how the companies will handle the expansion

through takeovers in 2014. It will be important to position yourself in

the right regions with just the right layout concept. Purchasing power

and demographics play a key role. With roughly 350 branches in Ger-

many, annual capital expenditures in the double-digit millions, and a

focus on sustainable concepts, toom Baumarkt is active on the real

estate market in a number of ways: by reopening stores in the wake of

restructuring work, expansions, and upgrades, as well as relocations,

new branches, and the development of green buildings. Our focus in

this context is on signing long-term leases. We make a continuous

effort to tighten our network of branches by opening new stores, while

also closing local supply gaps, and optimally supplementing our exis-

ting branches.

Have you identified specific growth regions in Germany?

While being well positioned, we are aware that our network of bran-

ches is rather wide-meshed in Bavaria. So we aim for a greater density

there. At the same time, the focus will be on suburban areas and me-

tro regions. Rural regions will also remain interesting. Here, we want to

position ourselves properly for the long run.

What would you say are the decisive (locational) factors for a DIY

store‘s success? What factors enter into your decision in favour

of a certain location or against it?

Aside from key factors such as visibility and accessibility, we always

place a premium on proximity to the customer when we choose a

location. Beyond that, the structural quality of existing properties is

of paramount importance, because they need to be adjusted to our

standard concepts and our sustainability criteria in order to become

modern, state-of-the-art DIY stores. New venues opening today ex-

tend over 3,800 to 5,600 square metres, with spacious garden supply

stores of around 3,000 square metres in retail area annexed to them.

What sort of qualities should a DIY store have that is about to

open today?

In our day and age, sustainability factors naturally play a central role

for your choice of location. This is why toom Baumarkt invests conti-

nuously in the energy refurbishment of our portfolio properties and in

the construction of new stores. In fact, we have helped to raise the

5

Interview with Björn Biermann

industry standard: Our new DIY store in Nieder-Olm was the first to be

awarded a “Silver” certificate by the DGNB German Society for Sus-

tainable Construction when it was completed in 2012. In the two years

since, we added another three green buildings, located in Bebra, Lüb-

beke and Jülich, respectively. The green buildings are designed in such

a way that the day-to-day operations make frugal use of energy and

water as a natural resource. The use of smart technology for heating,

cooling and ventilating actively contributes to the reduction of green-

house gases and to the conservation of resources. Another mainstay

of our real estate strategy is the modernisation of portfolio property.

Above all, we focus on sustainable concepts for the use of heating and

electric power, as well as on investments in new and efficient lighting for

the stores. On top of that, all of the toom DIY stores operate to 100%

on green energy.

At the moment we are making an intense effort to reconsider our lay-

out concept because our sector cannot afford to ignore the online

business. Our long-term property strategy will primarily be defined by

questions of floor area size and transportation access. Apart from that,

the customer takes centre stage, of course. By fine-tuning our product

range and the associated service options, we want to not just motivate

shopper to keep coming back but intend to turn them into true fans of

our stores and our brand. We believe that this can be done through

our brand strategy and our services, e.g. as advisors in interior design

issues and as brokers of tradesmen services.

Redos Real Estate

Holzdamm 28 – 32

D-20099 Hamburg

Tel: +49 (0)40 42 93 23 – 0

Fax: +49 (0)40 42 93 23 - 18

www.redos.de

BBE Handelsberatung

IPH Handelsimmobilien

Brienner Strasse 45

D-80333 Munich

Tel: 089-55118-0

Fax: 089-55118-153

www.bbe.de

www.iph-online.de

Images: Redos, Obi, Toom