Our specialty lies in finding pockets of value on a global scale. But in times of world-wide uncertainty, these are notably more challenging to source.
Europe’s strongest contender for crisis-resilience is, without a doubt, Germany. It has the largest economy in Europe at USD4 trillion and operates as a renowned safe-haven for investment. IP Global has been active in this market since 2008 and it has proven to be a very fruitful venture for our investors, who’ve not only seen strong capital appreciation but also achieved on average 112% of IP Global’s rental estimates upon development completion. It is with this experience that we are excited to announce our latest investment opportunity in the promising city of Leipzig.
Today, the booming economy and strong population growth underpin Leipzig’s housing market. The population has already increased by 24% since 2000 and is expected to rise by a further 25% to 750,000 residents by 2035, making it Germany’s fastest growing city. While demand for housing has expanded rapidly, housing supply has been slow to respond with a mere 13,510 units completed in the decade up to 2017. As demand soars and supply struggles to keep up, the vacancy rate in Leipzig has tumbled from as high as 12% in 2011 to as low as 2% today. This excess demand has put sustained upward pressure on house prices, with Leipzig being one of the few locations in Germany to experience double-digit growth in the year 2019.
As we gear up to take advantage of this unique German market, let’s explore Leipzig’s background to better understand how this unique opportunity materialised.
Located 160km south of Berlin, the city of Leipzig is situated at the confluence of two great continental trade routes, the east-west Via Regia and the north-south Via Imperii. Leipzig therefore became a flourishing trade centre and economic hub in the 14th century, and during this time developed a rich culture and leading educational role within Germany. The University of Leipzig, founded in 1409, is the second oldest university in Germany and one of the oldest in Europe.
Leipzig quickly became a hub of innovation, giving rise to the world’s first daily newspaper published in 1650. The first high speed printing press in Germany was later invented here in 1829, along with the introduction of steam-powered production machines which revolutionised the textile industry. At the forefront of business and technological change, the first long distance railway line in Germany was completed between Leipzig and Dresden in 1838. This laid the foundations for Leipzig’s industrial development, and by 1915 Leipzig Central Station was the largest rail station in Europe.
Leipzig was one of Europe’s fastest growing cities at the end of the 19th century, and by 1933 was the fourth largest city in Germany. It was relatively unscathed by the Second World War compared to the neighbouring city of Dresden, and therefore became the industrial production centre of the communist-run German Democratic Republic’s (GDR) economy. In the 1980’s Leipzig became the centre of a peaceful protest movement against the GDR’s policies, such as the erection of the Berlin Wall in 1961. These peaceful protests culminated with the Monday Demonstrations in 1989 which are widely credited as accelerating the fall of the Berlin Wall and paving the way for German unity.
The 1990’s were a difficult period for Leipzig. After the fall of the Berlin Wall and German Reunification, many former communist-era East German industries collapsed. This resulted in severe job losses and depopulation in Leipzig as many people migrated to West Germany. The outlook appeared quite bleak, however with the newly elected Mayor Wolfgang Tiefensee in 1998 came renewed hope for the city. New strategies focusing on education, urban renewal, economic development, social integration and environmental reclamation were considered the key to renewed growth of private enterprise and investment.
Leipzig reinvented and refocused its economy on five key business clusters, selected as promising industries with future high-growth potential. These five key clusters which have experienced the highest levels of employment growth since 2005, form a robust platform for the diverse economy to innovate and grow sustainably.
The five key clusters have proven highly successful since their creation. Better infrastructure and vigorous support of the new industry focus has aided the city in attracting prestigious “lighthouse” firms such as Porsche, BMW, DHL and Amazon. These firms act as beacons for Leipzig’s economic revival and growing global status.
A start-up scene is materialising in the city too, attracting many founders with its high quality of life and relatively low costs compared to other cities. Numerous incubators, accelerators, and co-working spaces provide entrepreneurs with business premises, expertise, and high-quality talent creating the perfect environment in which start-ups can flourish. There are currently an estimated 250 start-ups operating in Leipzig focusing on a range of sectors such as e-commerce, big data, energy infrastructure and smart mobility. Leipzig currently ranks as the 5th strongest start-up hub in Germany, and 117th globally -having jumped 173 places in a single year.
As a result of Leipzig’s successful strategy, the economy has doubled in size since 2000, totalling EUR22 billion as of 2019. After a slight decline as a result of the coronavirus in 2020, the economy is expected to increase by further 75% and reach EUR37 billion by 2035. At the same time, average GDP per capita has risen 62% since 2000, reaching over EUR64,000 as of 2019. After a slight dip in 2020, GDP per capita is expected to increase to EUR108,800 by 2035, an increase of 75%.
As Leipzig’s economy continued to flourish, 64,000 extra people joined the workforce resulting in the unemployment rate falling from a high of almost 21% in 2005 to 5% 2019. The unemployment rate is forecast to rise slightly in 2020 to 6.2% due to the coronavirus before swiftly returning to its pre-crisis full-employment level in the following years. At the same time, disposable incomes have increased from EUR25,700 in 2000 to EUR36,600 in 2019 (+42%). While disposable income is also expected to drop slightly in 2020, it is expected to rebound swiftly and continue rising to hit EUR59,300 in 2035, an increase of 131% since 2000.
Leipzig central station is in the middle of the Central German Railway Network and currently sees an average of 60,000 commuters per day. In January 2020, the German government announced a record breaking EUR86 billion investment programme for the national rail network.
The decision was based on Germany’s commitment to reduce transport sector CO2 emissions by up to 42% by 2030. The program aims to see regular high-speed connections operating between larger cities, with long-distance rail passengers increasing from 148 million in 2018 to 260 million (+76%) by 2030.
Leipzig Public Transport Network
With over 515 tram stops spread across the city, Leipzig boasts Germany’s second-largest tram network which services the city centre every 2-3 minutes. Alongside the bus network which encompasses 556 stops, the public transport network spans over 955 km across the city. In 2018, over 156 million passengers used tram and bus services in Leipzig, an increase of 400,000 on the previous year. The Leipzig Transport Authority continues to improve and expand its services, investing EUR30 million in 2018 alone.
Education has been a focal point in the city of Leipzig since the foundation of the University of Leipzig in 1409. As one of the oldest universities in Europe, former professors include the globally renowned physicist Werner Heisenberg and Nobel Prize winning chemist Wilhelm Ostwald. The university has also produced world-famous alumni such as writer Johann Wolfgang von Goethe, and philosopher Gottfried Wilhelm Leibniz.
Leipzig also has 6 universities of applied sciences, and approximately 150 research institutes and clinics including the specialist Heart Centre Leipzig, the IZI Fraunhofer Institute for Cell Research and Immunology, the Max Planck institute, the Media Campus, and BIO CITY LEIPZIG. Founded in 1764, the Academy of Fine Arts Leipzig is one of Germany’s oldest art schools specialising in fine arts, graphic design, photography and new media art. It is home to two world-renowned modern art movements, the ‘Leipziger Schule’ and the ‘Neue Leipziger Schule’. There are approximately 40,000 students living and learning in Leipzig today.
Leipzig is one of the most vibrant and unique cites in Germany today. The musical heritage is truly extraordinary with an abundance of great composers such as Johann Sebastian Bach, Clara and Robert Schumann, and Richard Wagner. The city also has a tradition of hosting great musical performances, with the famous Gewandhaus Orchestra alone attracting over two hundred thousand people to its concerts each year. They also perform Bach cantatas with the world-renowned St. Thomas Boys Choir – Leipzig’s oldest cultural asset, founded in 1212 - in St. Thomas Church where Bach once worked and is now laid to rest.
RB Leipzig was founded in 2009 when the Red Bull company purchased the playing rights of the fifth-tier side SSV Markranstädt with the intent of advancing the new club to the top-flight Bundesliga. In May 2016 this became a reality with RB Leipzig securing their spot for the 2016-17 season.
One year later, their meteoric rise continued with the team capturing a place in the 2017-18 UEFA Champions League. Red Bull has invested over EUR100 million in the club thus far, while match attendance numbers have sky-rocketed from 2,000 per game in 2009 to over 43,000 today.
Annual turnover for the club jumped 82% to EUR218 million in 2017 due to the promotion to the Bundesliga. The club’s income has continued to grow thereafter to EUR268 million for the 2018/19 season, putting RB Leipzig in 4th position in income terms after Bayern Munich, Borussia Dortmund, and FC Schalke.