Cash Magazine, Issue No. 2 | 2018 - rental yields. Property investors who want to acquire an object in a German metropolis must be satisfied with low returns due to the sharp rise in prices. But there are alternatives: Locations with good yields can be found in the economically strong Rhein-Neckar region.
Berlin or Germersheim? In hardly a city ranking would have the 20,000-inhabitant city on the Rhine crossing near Karlsruhe, even the slightest chance. But those looking for a capital investment today should refrain from sheer size, glamor and name recognition and think in other contexts. For example, the available household income in Germersheim is currently four percent above the national average. The capital is 14 percent lower, while housing vacancy is equally below three percent and immigration is a good one percent per annum. And also in the labor market, much speaks for a housing investment in the district of southern Palatinate. At present, only 3.8 percent of the working-age population is unemployed. In Berlin one is already happy if one slips for a few months below the ten-percent mark.
The reason for the good economic and housing data is the location of Germersheim in the Rhine-Neckar Metropolitan Region in the border triangle between Rhineland-Palatinate, Baden-Württemberg and Hesse. The area includes the cities of Mannheim (306,000 inhabitants), Ludwigshafen (167,000) and Heidelberg (165,000) and their surrounding areas, the rural Neckar-Odenwald district and the southern Palatinate with cities such as Worms or Speyer. Ten of the top 100 listed companies are headquartered in the region. In addition to global corporations such as BASF, SAP, Roche, Heidelberger Druckmaschinen, Heidelberger Cement, KSB or Fuchs Petrolub, many medium-sized companies, hidden champions and innovative start-ups are located in the region. These in turn benefit from a variety of scientific facilities, including 23 colleges and 30 other research institutes. The campus north of the Karlsruhe Institute of Technology with its 3,600 employees from Germersheim is only half an hour away. And BASF's parent plant in Ludwigshafen with just under 40,000 jobs can be reached in just under 45 minutes.
The economy in Rhein-Neckar is characterized by a forward-looking sector mix and a high proportion of primary added value as well as a large number of listed companies. Measured by their value (230.2 billion euros), Rhein-Neckar is the third strongest business location of the Federal Republic after Rhein-Ruhr (441.7 billion euros) and Munich (418.9 billion euros), but well ahead of Hamburg (51.5 billion Euro) or Berlin (21.7 billion Euro). The main areas of regional economic activity are: mechanical engineering, automotive, chemistry, information technology, energy, biotechnology, life sciences and health.
Also characteristic are the close networking of companies, the high degree of research affinity and the high export quota, especially in the manufacturing sector. Around 60 percent reach these companies based at the Rhein-Neckar. Nationwide, only 40 percent of the products are exported. A high-performance industry usually also means pay by tariff and a high density of middle-income as well as a high level of employment. On average, only 4.6% of the working-age people in the region are unemployed.
In any case, Rhein-Neckar can hardly be overestimated as locations for housing investments. In total, 2.4 million people live here. And especially in the central community, the trend towards urbanization is clearly felt. Because like almost everywhere, young people are drawn to the cities, where there are educational opportunities, well-paid jobs and many opportunities for leisure activities. The population in the peripheral communities of the Palatinate Forest and in the Odenwald, for example, is gradually declining, while it is steadily rising, for example, in Landau, Ludwigshafen and Mannheim. The cities in the Rhine-Neckar region benefit not only from regional migration movements. Nationally and internationally, the location with its strong economy and above-average income is also highly attractive.
In addition, there are local special effects: For example, a location like Heidelberg attracts thousands of new students to its university every year and, with its valley location, is literally one of the narrowest residential markets in Germany. Already in the 1960s, they began to realize housing construction on the slopes of the mountains. For example, the settlement on the Boxberg, outside the actual urban area, but with its own infrastructure and excellent access to the center.
Another plus is the predominantly good building fabric and compared to many apartments in the old town high equipment standards. Students who get a room in the Old Town in Heidelberg often have to share a bath with other parties and still pay 20 to 25 euros per square meter. At Boxberg, on the other hand, rents of eleven euros per square meter are paid locally. Thanks to entry-level prices of 3,350 euros per square meter, which are favorable for Heidelberg, rental rates of a little four percent per year can nevertheless be achieved on the Boxberg. Despite the top location, this is much more promising than offers in the center of Berlin, and with the same level of investment security.
The Forecast Future Atlas 2016 confirms Heidelberg's best prospects for the future in the field of "Economy and the Labor Market". In addition, the city with its offers in the areas of child care, school and family nationwide at the top. This makes Heidelberg so attractive as a residential location. According to current forecasts, the city will grow by another 9,000 people by the year 2020. For them, although new neighborhoods and districts are currently being built in the Bahnstadt and the former areas of the US Army, in view of an average of 600 completed apartments annually, the coming years are unlikely to meet the demand on the Heidelberg housing market.
Relatively relaxed, but nevertheless interesting for investors, is the housing market in Landau. The up-and-coming wine and university town, located in the heart of the scenic South Palatinate, with its 45,000 inhabitants is a medium-sized service and shopping center for a catchment area of around 250,000 people. The population of the southern Palatinate metropolis, as Landau likes to be called, should continue to increase in the years to come. Landau is considered a swarm city with special strengths in the service sector, the automotive supplier industry, in the printing and publishing industry as well as in the software and technology industry.
The asking rents for existing apartments in Landau increased by 7.4 percent last year. New construction rents increased by 6.5 percent. With rents of 7.84 euros per square meter in existing buildings or 9.42 euros per square meter in new buildings, the gross rental returns for existing apartments are high at 4.9 percent and 3.8 percent respectively in the new construction compared to the rest of Germany and have clearly increased over the past twelve months gained. All in all, Landau in the Palatinate is particularly attractive to buyers of an existing apartment as an investment property due to the rental yield.
Volatile or slightly declining purchase prices for one- and two-family houses signal at the same time that investors in locations such as Landau should focus predominantly on smaller and medium-sized apartments in the central locations. Families with children are more likely to look for a house with a garden in the Rhine-Neckar and find a plentiful supply of private homes from the 1960s to the 1980s, sometimes more, sometimes less far from the desired location, compared to the inner-city housing prices. In contrast, older couples and one-person households such as students often move into the urban core.
Some are looking for a good local supply, medical care and good transport links, the others would like to live as close as possible to their university. Apartments between 30 and 60 square meters can be rented there now and in the future. For in Rhein-Neckar, too, singling has long been a social reality.