The English Academy of Urbanism has named Leipzig the European City of the Year 2019. Leipzig is, according to David Rudlin, head of the academy, a city planner’s dream thanks to its lively streets, its potential for creative ideas, its stability and its fantastic streetcar system. It is a fascinating development, especially against the background of the economic decline of Saxony after the reunification of Germany at the beginning of the 1990s. Since the beginning of the century the population of Leipzig has grown by about 100,000 people to a current total of 580,000. The city’s economy is growing positively and unemployment has fallen dramatically. As a result, real estate in Leipzig is not only scarce, but it is also becoming more expensive. According to statistics from the German real estate portal Immowelt, since 2008 property prices in Leipzig have risen by an average of 74%. According to the portal in 2018 the average cost per square meter in Leipzig was 1,910 euros. By comparison, in Munich it was 7,070 euros. Just 10 years ago the average cost of real estate in Leipzig was 1.100 euros per square meter. The market was replete with offers for even 300-500 euro/m2. However, the German Real Estate Association IVD called it a good time to buy. Low interest rates, economic development and growth in prosperity have significantly offset the high purchase prices. In addition the government subsidies for families with children Baukindergeld have added to the attraction of owning property.
How did Leipzig develop so quickly?
It’s all down to the city’s history. In pre-war times, the city grew very rapidly. After the war, the city’s population plummeted, and also in the 1990s, when most of the residents of the eastern lands rushed west. In the early 2000s, about 21% of the city’s housing was vacant, meaning one in five apartments stood empty. When word got out that you could buy cheap housing in Leipzig, live cheaply and work creatively, people from other cities suddenly rushed into the city and unknowingly made sure that the paradise they had come here to live in slowly began to disappear. At the same time, major concerns like BMW and Porsche opened branches in the city. The volume of empty apartments dropped sharply to 3 percent.
Leipzig is the best alternative to Berlin
Leipzig is still called the best alternative to Berlin. Those who can not afford to buy or rent in Berlin move to Leipzig. For decades the city has attracted people from the arts, young people and students. Unfortunately or fortunately Leipzig is not as cheap as it was only 10 years ago, when you could rent an apartment in a building not rented for 1.5 Euro/m2 or buy one for 300 Euro/m2. They even laughed at these prices in West Germany. On the one hand it was a good time, on the other hand not, because such low rents made it uneconomical to invest in refurbishment and urban development. Until 15 years ago, the city of Leipzig was a city of empty housing. Now it’s increasingly struggling for square footage. Real estate prices and rents have crept up.
If you compare Leipzig with other cities in Germany, housing in the city is still very affordable with average rents of around 6 euros/m2. Affordable prices have remained mostly on the outskirts of the city, though. In Leipzig, as in other large German cities, a process of segregation is taking place, with the poorer sections of the population being forced to move to the outskirts or to poorer parts of the city. Politicians and sociologists fear this development because it runs the risk of making the rich forget what poverty means and the poor lose the opportunity to rise.
Compared to other cities, Leipzig is still affordable and more liquid and attractive to investors. While it used to be difficult to find a long-term tenant and building renovations were unprofitable, the city is now being actively rehabilitated and inhabited, which is good for the overall picture of the city. Thanks to rising rents and still low purchase prices, the city’s average annual yield is about 4-5%, which is a very decent return compared to the yields already around 2% or lower in large cities like Berlin and Munich.
By 2030 the city expects to add another 100,000 people to its population. At this rate of growth, the city urgently needs to build new housing. Taking into account examples from other German cities where the new housing construction lags far behind the population growth we can see all the conditions for a further increase in costs and rents. Thus, the city remains very attractive to investors who invest in real estate, both for the purpose of obtaining a stable rental income and for the speculative purpose of resale in the future.