As part of our special report on Retail Transformation, we look at how the Hamburg-headquartered firm is separating its retail and mixed-asset arms to strengthen their autonomy, as the business embraces a diverse future.
On 1 January 2021, Hamburg-headquartered ECE’s mixed-assets division, ECE Work & Live, begins a new era.
Officially spinning off as a distinct entity under CEO Henrie W. Kötter as part of a bigger reorganisation of the firm, the move formalises ECE’s long-term transformation from shopping centre developer to an integrated real estate and investment group in Europe.
ECE Work & Live will specialise in the asset classes of offices, hotels, logistics and residential as it continues ECE’s mission of creating vibrant, urban developments.
Yet to assume that these forays are something new is to deny the firm’s – and the founding Otto family’s – multidisciplinary past. For the company and its founder have been developing entire neighbourhoods in the office, residential, hotel, logistics, and special properties sectors since the 1970s; ECE is also among the top three hotel developers in Germany today.
While residential components have been a part of the picture for more than a decade, this focus deepened in 2019. ECE ventured into London’s residential markets and then made a second splash by purchasing 2,100 build-to-rent apartments in Birmingham, Leeds and Manchester this year.
All this happened while remaining the largest shopping centre operator in Europe.
ECE Work & Live boss, Kötter, tells PropertyEU that the new business unit is an opportunity to ‘recycle and adapt a lot of the lessons we’ve gained over the last few years’.
Kötter explains: ‘It’s nearly five years since we slowed down our ground-up development activities in retail to expand across a range of asset classes. Now we believe we can leverage our pan-European development capability and the experience and knowledge that we have. There’s a big opportunity for value creation on a larger scale.’
Lessons from retail
While Kötter’s brief naturally omits retail, he says that the ‘lessons’ of the asset class will serve the new unit well. ‘Retail has always undergone such a drastic speed of change that it keeps you on your toes,’ he notes. ‘Other asset classes are now having to develop this kind of responsiveness to change and launch intensive dialogues to evolve. This is normal for us.’
Looking at the broader challenges and changes in commercial real estate and its evolving demand patterns, he adds: ‘The answer must naturally be: build structures which are flexible in nature.’
For Kötter, who has spent more than 15 years with the company, ECE Work & Live is an opportunity to leverage the firm’s customer-centric view which was formed by five decades of retail. ‘Our solutions for logistics, hotels, offices and residential all benefit when we look at them from the end-user’s perspective.’
The other consequence of this focus on user groups is a shift away from the geographical divisions of yesteryear. ‘In the past, we’ve had country-specific strategies. We are now looking more at cities and metropolitan areas and what their end-users have in common. Renters in the residential markets of Barcelona, Milan, Berlin and Copenhagen probably have more similar expectations than city and country dwellers in the same territory. Logistics and hotel requirements are also fairly homogenous across Europe.’
The latest urban trends have also reinforced the relevance of mixed-use assets – especially where they unite work, live and play functions.
Kötter insists: ‘There’s not a one-size-fits-all approach, you need to dive into each unique situation and analyse what the neighbourhood is lacking. That holds true for hotel, residential, offices, and even logistics assets.’
He is enthusiastic about the evolution of the logistics industry. ‘We’re looking at multi-storey assets, different user specs to accommodate different traffic volumes,’ he says and when touching on hot topics like last-mile logistics, he assumes the user’s perspective rather than the real estate developer view: ‘There’s no point moving a product 300 km if it’s sitting in a store locally.’
In addition to urban logistics concepts this also means that the firm is seeking further synergies, particularly through ECE’s existing digital mall service, which links online demand with physical stores in the shopping centres they manage.
While the case for ‘beds and sheds’ is self-explanatory in the current boom, the business is also pursuing opportunities in offices and hotels, despite headwinds particularly for the latter. ‘Alongside retail, hotels were the hardest hit by the pandemic,’ Kötter agrees. In terms of the challenges of underwriting hotels, he says: ‘We are seeing a number of hotel developments that stalled due to a lack of financing, and in some of these cases, it can be interesting for us to step in and work with the developers. We have capital that we can also deploy counter-cyclically, although we are definitely moving more cautiously.’
Another asset class in flux is arguably the office market. ‘Offices will evolve. But the role an office plays in the creation of an identity for a company and a team remains. And, going forward, we will need offices to bring people together and create fantastic things. The big question is how the demand for offices will change, and we are sure that it will. For starters, rigid 15- or 20-year leases are outdated – office landlords will need to accept that tenants require more flexibility – a lesson that retail landlords have already learnt. New and more flexible models will arise which allow office tenants to accommodate changing space needs and developers to create inspiring spaces.’
Also, arguably counter-cyclically, ECE is embracing the UK residential market, with forays into London, Manchester, Leeds and Birmingham. ‘We like what is happening in those respective markets, which look very dynamic in terms of their future potential. Yes, they are affected in one way or another by the evolution of the currency, legislation and economic cycle but the overall long-term trend is positive. We particularly like the build-to-rent market. Despite the fact that Brexit is an influencing factor in the trajectory the country is taking, the fundamentals of our selected markets are strong and propensity towards buying a home decreases in times of uncertainty. No matter what, people still need to live somewhere.’