Premium Access




Real Estate in Leipzig

General market development

The financial crisis left its marks on real estate markets all over the world. Leipzig’s real estate market is no exception, having experienced difficulties especially during 2008, prior to the onset of the financial crisis. Yet following the severe downturn, the market is slowly recovering and offers interesting opportunities, which are worth investigating.

After massive growth in the years 2006 and 2007, transaction volume in the Leipzig Real Estate market decreased to approx. €936 million in 2009 (from €1,751 billion in 2007 and €1,098 billion in 2008). Particularly the market for existing buildings suffered a dramatic breakdown of minus 64% since 2007.

4,954 property sales were registered in 2009. This represents a decrease of 564 sales as opposed to the previous year, but in comparison to the years before the crisis hit, the number of property sales is still rising (2004: 3,600; 2005: 4,400).

At approx. €437 million, the share of existing properties still amounts to 47% of total transaction volume on the Leipzig real estate market. Overall, the market has stabilised and offers premium properties at compelling price points relative to comparable national and international objects, affording an excellent resale value. Price retrenchments because of overheated conditions impacting the market up to the mid-90s had already set in around the turn of the millennium and opened up the market for resellers.

Investment market

The current situation in Leipzig’s real estate market is quite favourable for the typical investor on account of the dynamic developments over the last two decades. At the time following German reunification, Leipzig showed herself to be a metropolitan area with bright prospects due to her outstanding educational, working and living environment. In the wake of erratic changes lasting through the end of the 90s and marked by strong upgrading and rehabbing activities prior to the expiration of long-term depreciation rules, the environment for re-sales has substantially improved. Typical multi-family dwellings and vintage buildings of the type are perfectly suited for development and/or a leveraging of existing or future real estate portfolios.

The market in Leipzig remains fairly steady despite the collapse of the international markets. The population base is still growing, the unemployment rate is on a downward trajectory and rents are demand-driven, accordingly. Furthermore, the process of renovation/rehabbing continues so that as of today, most of the properties have been thoroughly upgraded. The financial return on a property is predicated on its degree of refurbishment and desirability – a fully let and managed building is a secure source for long term returns and has above-average appreciation potential.

Because of those developments, Leipzig will be a significant and pre-eminent city for appreciation potential to the domestic and foreign investor. In conjunction with the currently low interest rates carrying over from the crisis, investors are presented with a magnificent opportunity for high returns in an ideal investment climate.

Leipzig: The market for multiple-family dwellings

Chart.

Because of the stable and slightly rising rents, investors can expect high returns in the Leipzig property market. Flat and commercial real estate in preferred locations yield returns between 7% and 8%. Even higher returns (8% to 9%) are achieved in individual prime locations. Secondary locations still bring returns between 9% and 11%.

In 2008, 453 multiple-family dwellings were sold. This represents a decline to the level of 2005, following the noticeable up-tick over the last two years. Especially the number of renovated multiple-family dwellings dropped 45% to 158 transactions. This market is especially interesting since the quality represented by the properties is offered at a discount far below acquisition costs. The once ample inventory is still replenished by newly available properties in the face of static sales prices since 2005, only to strengthen somewhat of late. With current rents likely to firm in the near future, an investment will find itself on a sound financial footing.

Amongst others, the average purchase price for renovated multiple-family dwellings rose 7% since 2007 and reached €657.00 per m² in 2009.

The condominium market

Chart.

Sales of flats owned outright or in partnership are constantly increasing. In 2005, the turnover was approx. €265 million, whereas in 2009 it had reached already €442 million.

Renovated flats in older buildings had an average purchase price of €2,147 per m² in 2009 (original purchase). This represents a rise of 11% (2007: €1,932 per m²).

In 2009, dwellings in new housing developments sold for on average for €2,241,00 per m² (2007: €1,819,00 per m²).

The purchase of pre-owned flats is subject to similar contingencies as those of entire buildings. These flats are usually sold for reasons of discontinued tax breaks or personal circumstances. The prices asked are usually discounted between 30–50% of their original, providing a sure-fire rental income. It especially applies to multi-flat transactions.

The rental market

The rents for flats increased slightly during the last few years, but still are stuck on a comparatively low level relative to the quality of life a prime building offers. Letting poses no problems in sought-after neighbourhoods or for well-appointed flats. There is an increasing demand by students, singles and young families, not the least for premium flats with extensive amenities.

Net rents for unheated dwellings in new housing developments narrowly range between €5.50 and 5.60 per m². This is considerably higher than the net rents for flats in older buildings, ranging between €4.70 and 4.80 per m² in 2009. Since in 2002, the average net rent in unheated older buildings had averaged €4.35 per m², an appreciable uptrend is noticeable long-term.

Urban development

Over the last decade, Leipzig’s population has been steadily growing. Since 2000, the population increased from 493,208 to 519,325. It implies that the demand for properties in Leipzig is still growing in times of an overall decline in property values.

Although the number of people living in Leipzig is increasing, the rate of unemployment decreased from 20.8% in 2006 to 13.6% in 2009.

The people of Leipzig prefer areas with older buildings, in particular Wilhelminian style houses. These districts see an influx of new residents, predominantly of a younger age. Amongst others, the downtown area of Leipzig, Gohlis-Süd, the southern suburbs, the eastern city centre and Schleußig and Plagwitz in western Leipzig noticeably gained in population over recent years.

The main focus of Leipzig’s urban development remains on the eastern and western parts of the city. Those districts have become more attractive because of their high-quality renovation efforts, in essence representing an indirect subsidy that brings about positive changes in terms of infrastructure and expansion.

Improvements for the less affluent parts of town are to be achieved by the demolition of old, run-down buildings. Furthermore, new parks, together with plenty of plant life and open spaces, are going to be created. The initiatives are designed to encourage private investors and to support home ownership.

Sources

Stadt Leipzig, Dezernat Stadtentwicklung und Bau: Monitoringbericht 2009 (www.leipzig.de/monitoring)
Gutachterausschuss für die Ermittlung von Grundstückswerten in der Stadt Leipzig: Der Grundstücksmarkt in der Stadt Leipzig 2005, 2006, 2007, 2008, 2009
Statistisches Landesamt des Freistaates Sachsen, Kamenz 2010 (18.05.2010)
Statistisches Landesamt des Freistaates Sachsen, Kamenz 2010 (18.05.2010)
Statistisches Landesamt des Freistaates Sachsen, Kamenz 2010 (18.05.2010)
Stadt Leipzig (18.05.2010)