Tuesday, 26 February 2008

Leipzig Residential Rental Market - Investor Information on Rent Level and Location

Leipzig has been the target of many international property investors over the last 24 months. Here are some of the hard facts why Leipzig has attracted over 1.6 billion Euros in investment capital during 2006 alone.

The economic situation in Germany and especially in Leipzig is positive with the prospect of at least mid-term prosperity. The property market has three main drivers for income improvement:

1. Positive population development accompanied by new jobs.

2. Reduction of vacant apartments by demolishing ca. 20,000 "outdated" apartments by 2010.

3. Active owners interested and acting on improvement of their rental income situation.

But as you know just being in the right region or city does not guarantee that the property offered is actually in a good location. This article will show the current rent structure in Leipzig and some of the sought after locations and which ones are on the rise. For background information on the economic development of the region and the current situation please refer to the details at the end of this article*).

The Leipzig Residential Property Market

The City of Leipzig has an official rent table which is dated 2005. A new one is being established in 2008. The current rent levels are from market research carried out by HVB and Eurohypo, two leading German property finance banks.

The rent level for renovated, medium standard and medium size apartments (70 sqm) is on average at 3.85 Euro per sqm in pre fabricated blocks and 4.40 -- 4.70 Euro per sqm in blocks built before 1945. For inner city prime locations the rent per sqm for the same standard and size is at 6 -- 7.50 Euro per sqm. Small apartments up to 45 sqm generate the highest rent in all categories and are on average at 5 Euro per sqm.

The rent table distinguishes locations between "Very Good", "Good", "Medium" and "Basic". The spread in the rent level for new rentals in these categories are:

Very Good: 6 -- 7.50 Euro per sqm

Good: 5 -- 7.50 Euro per sqm

Medium: 4 -- 5 Euro per sqm

Basic: 3 -- 4 Euro per sqm

Locations being categorized as "very good" can be found in City South, Gohlis, Schleussig, Leutzsch to name a few. Rents in good standard modernized period buildings are rising. Especially in preferred areas like Waldstrassenviertel, Musikerviertel, Bachviertel, Schleußig and Gohlis-Süd an increase in rent of 10 to 15% over the next 2 years is expected.

The good and very good locations mentioned above are only specific regions within the districts named and they can be right next to an area that is considered basic. So it is very important to have reliable information about the actual micro location of a property. I have yet to see an agent's exposé declaring the location of his offer as being basic. There are maps and street registers available that are based on statistics developed for the official rent table (Mietspiegel). This rent table plays an important role in German residential rent legislation. It is the main legal basis for raising the rent in existing contracts.

Next to the factor location there is a growing trend towards smaller apartments for single occupancy, especially near the university and other teaching institutions. Even though they achieve the highest rent an investor has to keep in mind that from experience these smaller apartments have a higher turnover with the risk of temporary vacancy and renovation cost.

*) What makes the Leipzig Residential Property Market so interesting? By Uwe Falkenberg

The author is a Berliner and active in the German property market for more than 25 years. Experienced as project manager, developer and head of the German Business for a UK based property consultancy he now owns and operates Berlin Portfolio Ltd His international background and local expertise is an ideal combination for an international investor. For Property Search we recommend Properties in Germany


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