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Leipzig‘s Real Estate market - Population growth and sustainable urban development indicate further rise of property prices

July 2, 2020

Leipzig has shown multiple positive developments in recent years and established itself as a vital and livable city. With a so-called „Integrated Urban Development Concept Leipzig 2030", the strategy for the future development of Leipzig was set in 2018 for the next ten to 15 years. The city’s population has been growing steadily and reached about 600,000 inhabitants at the end of 2019, which makes it the largest city in Saxony and 8th biggest city of Germany behind Düsseldorf. The number of employees is also developing positive. Between 2010 and 2019, insurable employments increased by around 26 percent to just under 273,000.

Investment market

According to BNP Paribas Real Estate surveys, Leipzig‘s investment market made a brilliant start to 2020 with a transaction volume of EUR 351 million in the first quarter. This is the second best result ever registered and impressively demonstrates that the Saxon metropolis is very popular with investors, in particular, office properties. These accounted for about half of the investment turnover and slightly exceeded the high profit share of the previous year.

Investments sorted by sector in Leipzig Q1

The yield level hardly changed in the first quarter of 2020. According to BNP Paribas Real Estate, the net prime yield for offices was around 3.8 percent.

Office market Leipzig

The floor-space turnover of Leipzig’s office properties reached 21,000 square meters in the first quarter of 2020 and thus slightly below the long-term average. shows BNP Paribas Real Estate. This is mainly due to the fact, that the shortage of modern large office properties has caused a lack of large deals. In addition, traditionally strong customers such as public institutions have not yet become active on the market at the beginning of the year.

Floor-space turnover and rent ceiling in Leipzig

The prime rent currently is EUR 15.50/sqm and the average rent EUR 11.10/sqm.

The sector distribution reflects the growing importance of the information and communication technology (ICT) in Leipzig. With 32 percent the ICT industry accounts for the biggest share of the floor-space turnover, followed by consulting companies with just under 26 percent.

The development of the vacancy rate is still encouraging. According to surveys by BNP Paribas Real Estate, the past three years have a lasting effect on the Leipzig office market. With 183,000 square meters of vacant space, a historic low was reached in the first quarter of 2020. This corresponds to a vacancy rate of 4.8 percent.

Development of vacancy rate in Leipzig

Construction activities remain at a constant level. Despite the sharp decline in vacancies, BNP Paribas Real Estate didn’t note an increase in construction activity. In contrast, the projected areas increased by 34 percent compared to the end of 2019. Therefore, BNP Paribas Real Estate suspects that construction activity will increase in the near future.

Outlook real estate market Leipzig

Aengevelt Research expects at least temporarily - depending on the duration and extent of the COVID-19 crisis - a significantly more subdued demand in the investment segment and a corresponding decrease in transaction turnover. In addition, a more precise assessment of the creditworthiness of tenants will come to the fore in the case of office properties. Due to the current economic uncertainty, flore-space turnover is likely to decline, because companies postpone their expansion plans or free up space. Aengevelt also believes that home office solutions and digital meeting structures that have been successfully tested in the crisis will be continued in part by companies. There could be a decline in the volume of new buildings, since new buildings without pre-letting may no longer receive bank financing. It is unclear whether a change in workplace guidelines could result in a higher space requirement per employee. Aengevelt predicts, for example, that the yield level will continue to be low in 2020, with some of the yields even falling further, i.e. increasing purchase prices. BNP Paribas Real Estate is also in a positive mood: “Leipzig continues to be very attractive for tenants and investors,” emphasizes Stefan Sachse, Managing Director of BNP Paribas Real Estate GmbH and Leipzig branch manager.