Where real estate investments pay off in the long term

If you want to focus on population growth when investing in real estate, you should invest your money in projects in Basel, Zurich, Geneva, Graz or Linz. According to a study by the Empira Group, these are the main cities in the DACH region that will see the greatest population growth by 2035.

The German cities with the strongest growth are Leipzig, Frankfurt am Main, Cologne and Hanover. On the other hand, investors should rather keep their hands off Gelsenkirchen, Bochum, Oberhausen and Duisburg. The population is decreasing.

But: an investment decision based only on expected population growth – which is too short-sighted, as the Empira study “Growth Factors of Big Cities in the DACH Region” shows.

Population growth isn’t everything

The Swiss Empira Group is an investment manager for institutional real estate investments. The company has now looked at the 46 largest real estate markets in Germany, Austria and Switzerland for socioeconomic and demographic fundamentals. Among other things, age and economic structure, demographic development, public debt, disposable income, unemployment and absolute and per capita GDP were analyzed.

“Especially for long-term oriented institutional investors, it is crucial to understand the structural factors for the future development of value in the real estate market. Experience has shown that traditionally used indicators such as job vacancies and rent levels can change at very short notice. On the other hand, aspects such as educational qualifications or the percentage of employees in the public sector are very stable, “says Professor Steffen Metzner, head of research at Empira and author of the study.

Interesting opportunities away from the major cities

The purpose of the study was to form groups of similar places. This makes it possible to find attractive alternatives for today’s major markets that have so far been less in the focus of investors.

“Our grouping reveals one or the other market apart from the top 7, which is structurally similar to popular target markets, but possibly also cheaper to buy,” Metzner emphasizes. For example, with Bonn and Mainz there are two smaller cities that can be assigned to the same socio-economic cluster as Vienna and the seven German A-cities, namely Frankfurt am Main, Cologne, Düsseldorf, Munich, Berlin, Hamburg and Stuttgart.

“Armored vehicles are out of the question for investors who want to seize opportunities,” says Lahcen Knapp, member of the board of directors of the Empira Group. “The huge variation in local economic structures, age and population in the DACH region allows for a potential for diversification that is largely unique in Europe. One city may be particularly suitable for student accommodation, another for flexible office use. “

What factors should be considered before real estate investments

The most important findings of the Empira study:

  • Young, high-income cities are growing the most, at least most of the time. The exceptions are the relatively old but rapidly growing Colony and the relatively young but dwindling Bielefeld.
  • The link between annual net disposable income and probable population growth is striking: in all declining cities, income is less than € 24,000 per capita. But beware of generalizations. Because not all low-income cities are shrinking. Leipzig, which has the fourth lowest income of the cities surveyed, expects population growth of more than 13 percent; in Munich, Germany’s highest-income city, the population will increase by just over seven percent by 2035.
  • Unemployment and economic growth say little about a city’s future development and the potential need for new housing.

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