Construction boom in cities: Quality of life and economic innovation as pull factors

Diverse reasons for the influx: demographic change, rural exodus, start-ups

There are various reasons for the construction boom in urban areas. Demographic change is a major driver: Overall, people are getting older as a result of modern medicine, which is a significant step forward in society. However, this also means that living space remains occupied for future generations and is therefore missing for young families and immigrants.

Large cities such as Hamburg, Berlin or Munich not only offer young people a wide range of career prospects, but also impress with their quality of life. In contrast to rural regions, there is a wide range of cultural events and gastronomic highlights. The major German cities have a lot to offer career starters, young families and high-income earners. Especially for the young generation, there are significantly more career prospects in cities such as Berlin, Munich, Hamburg or Cologne than in structurally weak rural regions.

In recent years, the start-up sector in Berlin in particular has attracted many young career starters. The rising wealth of the heir generation is another significant factor that not only increases demand for private real estate, but also drives the creation of start-ups. As a result, Berlin in particular has become an important melting pot for innovative companies from various sectors, such as the creative and cultural industries and various technology sectors, and acts as a magnet for well-trained specialists.

A large influx in turn means an increasing demand for living space, while company founders are looking for additional office space in metropolitan areas. The result is a sustained boom in the construction sector.

Quality of life also impresses highly qualified specialists from abroad

In Survey results of a Mercer study In Germany, the metropolises of Munich, Frankfurt and Düsseldorf in particular were able to establish themselves among the top ten most livable cities. The Bavarian state capital Munich also came in third place in the international ranking. The Mercer study examined large cities in terms of quality of life, from the perspective of so-called expats. The pull factor of cities such as Munich, Frankfurt and Düsseldorf therefore not only affects local young professionals, but also across national borders on highly qualified specialists from abroad. Job offers and a high quality of life have a corresponding effect on demand for housing.

Smaller residential units in A-cities are particularly in demand

With all the demand for living space, one thing is particularly clear: Small residential units are more in demand than ever. Due to the strong influx of young generation cohorts, in major cities, in particular the A-cities, small residential units in particular are increasingly in demand. Because on average, young professionals are more likely to be singles. The proportion of single households in Berlin is particularly high. Almost half of all households here are single-person households. Overall, the centers and districts close to the city center are primarily characterized by single households. This situation means that living space is becoming increasingly scarce, especially in popular districts.

So-called micro-apartments, which are increasingly popular, especially in major cities such as Berlin or Hamburg, can be a solution to the housing shortage. Young population groups in particular, such as students or young professionals, can benefit from small apartments in an attractive location. Large cities currently lack smaller residential units in particular, meaning that students or young professionals often only consider living in a residential community from a purely financial point of view. The newly designed micro-apartments, on the other hand, have just been adapted to changing needs. This is also to be seen as a factor for the continuing boom in the construction sector.

Using serviced apartments as a capital investment

Microapartments can not only solve the housing problem in big cities, but are also very suitable as a capital investment. Such small apartments offer interesting opportunities, especially for private investors. Individual micro-apartments are much cheaper to buy than classic three to four-room apartments.

Serviced apartments are also trending. High-income earners who only work in a city for a few years prefer to live in high-quality, stylish and fully furnished apartments, which they can rent on a monthly basis and can quickly leave again if their job takes them to another location. The resulting comfortable, contemporary micro-apartment complexes in Berlin or Frankfurt are interesting and promising investment opportunities.

Real estate as an asset class: Popular with investors in Germany

The interest rate for construction loans is at an all-time low. That doesn't mean that every property is available at a bargain price. Real estate in popular A-cities such as Hamburg, Berlin, Munich or Cologne is particularly sought after. Even though rents in major cities have been stagnating for some time, demand remains high. In contrast to traditional asset classes such as savings, stocks or bonds, real estate is linked to a specific asset class and is therefore extremely popular with investors.

Unlike traditional investments, real estate in big cities is not subject to as much market fluctuations. Even though rent losses can potentially never be ruled out, long vacancy rates in popular cities are rather unlikely due to sustained demand. Through digital investment solutions such as tokenized shares, retail investors can participate in real estate projects and thus build up digital assets.