What makes the Leipzig Residential Property Market so interesting?
by
Uwe Falkenberg
The economic environment
The outlook for
the German economy is positive and the economic upturn is continuing.
2008 will see a change from purely export driven growth to more growth
support through domestic demand. For the first time in years significant
raises in salaries are currently negotiated and the consumer climate can
be seen as friendly. This will be associated with further reduction in
unemployment, as companies are prepared to take on staff. Growth in the
economy can be expected to stimulate the German property market.
The Local Aspect
Many of the major
investments went into the federal state of Saxony with the main focus
points in the state capital of Dresden and the traditional economic
center of Leipzig. With regard to the economic growth Saxony has pushed
Bavaria off the first rank amongst the German states.
BMW has opened a
new production plant near Leipzig, Porsche is extending their capacities
to produce a 4-door-sedan and DHL the logistics subsidiary of the German
Post has decided to develop their new logistics turntable in
Leipzig-Schkeuditz at
the Halle-Leipzig-Airport which will be operational in 2008. Here
investments will be 300 Million and will directly create 3,500 jobs with
another 7,000 indirectly related jobs and another 10,000 in the car
sector.
The German Property Market
Germany has seen
a major influx of international capital to its property market over the
last 2-3 years with record year 2006 which was considered a record year
still being outranked by 2007. The year 2008 is seen by most market
players as a year of consolidation. Increasing numbers of institutional
investors will become sellers which should offer interesting
opportunities for smaller and
private investors as it is unlikely that all sales will be in large
packages.
Leipzig is one of
the few places in former East Germany with a positive population
development which is expected to keep going at least until 2012. At the
same time the city runs a program to demolish old unsuitable
pre-fabricated housing blocks and thus take pressure from the rental
market. It started out with 1,000 apartments in 2006 and will be
continued until 2010 with a goal to reduce by 20,000 apartments. The
statistical vacancy rate in 2005 was at ca 16% but half of these were
not accepted by the rental market and did not constitute a competition
for prospect tenants reducing the market active vacancy rate at its
highest in 2005 to 8% (EUROHYPO).
In 2006 over 1.6
billion in property value were traded in Leipzig out of which 26% were
apartment blocks. The figures for 2007 will be slightly higher with
approximately the same share of residential
buildings. The vast majority of these
apartment blocks were bought by foreign investors with an investment
perspective of 5 to 10 years. The objective is to improve the rent and
drive yield and value. This will push for an increase in rents.
Conclusions
The economic
situation in Germany and especially in Leipzig is positive with the
prospect of alonger period of prosperity. The property market has three
main drivers for income improvement:
-
Positive population
development accompanied by new jobs.
-
Reduction of vacant apartments
by demolishing ca. 20,000 “outdated” apartments by 2010.
-
Active owners interested and
acting on improvement of their rental income situation.
With a follow-up article I will
provide information about the rent in different parts of Leipzig and the
immediate environment. You will find this article here.
This work is licenced under a
Creative Commons Licence.
