European food retail has quietly become one of real estate’s most dependable performers – underpinned by non-discretionary consumer spending, stable long-term income, and a resilience that held firm through the pandemic and the inflation spike that followed.
But with capital increasingly competing for these assets and yields tightening, some investors are asking the question: is there still value to be found in food retail today?
In this Q&A Kathrin Michalzik – Head of Fund Management, Germany at Savills IM, unpacks the opportunity in European food retail.
1) How do you view the current European food retail real estate market?
It’s in good health, and arguably one of the more resilient corners of real estate right now.
The food retail sector as a whole has held up well since the onset of the pandemic. At a time when other sectors have had years of adapting quite significantly – retail navigating increasing e-commerce use, offices rethinking space around hybrid working – food retail has largely performed well and taken changes in consumer behaviour in its stride over the last five or six years.
For example; grocery sales have proved remarkably steady, even through the inflation spike of 2022-23 people kept spending on food because it’s non-discretionary; grocery remains a habitual, high-frequency trip which keeps stores busy and underpins the value of well-located assets; and online grocery spending is largely fulfilled from existing physical stores, so any rising e-commerce use makes the store network more valuable, not less.
And now having proved their defensive qualities through a genuinely challenging period for real estate food retail and food-anchored assets have become increasingly sought after by investors.
2) Can you expand on that? What makes food retail such an attractive proposition for investors in the current climate?
At its core, it’s about dependable income.
Food retail can offer genuinely defensive characteristics – low vacancy, long lease terms and stable, long-term income underpinned by essential consumer spending. Investors are also attracted to the long-term, index-linked leases we see in the market, which provide predictable returns and a degree of protection against inflation. And following the price correction that came with the shift in interest rates, we’re seeing more attractive risk-return profiles once again.
What’s interesting is how the perception has evolved. Investors increasingly view grocery-anchored assets not simply as a defensive play, but as long-term strategic infrastructure tied to everyday, non-discretionary spending. The store network is essential to how people eat and how retailers operate (both in-store and online) which gives these assets a kind of irreplaceable quality.
That shift in mindset matters. It moves food retail from a safe harbour in tough times toward a core, long-hold allocation with the durable, income-generating capability.
3) What shifts in consumer behaviour and occupier requirements are you seeing in the market today?
Demand has clearly shifted toward value and convenience.
Discounters continue to expand and they’ve been among the biggest winners of the cost-of-living squeeze, with shoppers recently becoming more price-conscious. But at the same time, the major full-range supermarket operators continue to trade strongly and remain deeply embedded in consumers’ everyday shopping habits. Both formats play important roles in the market, reflecting the different needs and preferences of consumers today.
The other major shift is around ESG and energy efficiency, and this is now central to occupier decision-making rather than a nice-to-have. Grocers are heavy energy users with refrigeration needs and long trading hours making stores expensive to run. So energy performance directly affects their operating costs. Increasingly they want modern, efficient, well-rated space, and many are investing in green energy and sustainability measures themselves.
For landlords, that has real implications. Newer stock that meets these standards commands stronger demand, while older assets often need meaningful capital investment to remain lettable. It reinforces the point that asset quality and sustainability credentials are becoming key differentiators in what tenants will take.
4) What should investors be mindful of in the sector – and where do you see things heading?
I think the main thing to be aware of is that this is now a competitive space. As more capital has competed for these assets, pricing has firmed and yields have tightened. Increasingly, it’s about asset management capability driving income growth and adding value.
Selectivity matters too. Backing the right operators and formats, and being thoughtful about location and asset quality, is what separates a good investment from an average one.
Looking ahead, I’d say the fundamentals that make food retail attractive aren’t going anywhere – people will always need to eat.
I’d expect continued investor demand, a growing focus on well-located, sustainable stock, and real opportunity for those willing to invest in assets and grow income at the property level.
