Milieu has a major influence on value-determining factors
Given the challenges of the current economic climate, German property developers are more careful than ever before in their analysis of parameters such as construction costs, rental price trends, and yield potentials. Nonetheless, the quality of local infrastructure, including access to public transport, schools, daycare centres, nurseries, local amenities, and green spaces, also has a major influence on developers’ pricing models. The impact of these factors largely depends on the specific social milieu of the target demographic.
The situation is by no means getting easier
For the period from 2010 to 2022, the Federal Statistical Office’s construction price index registered an increase of 64 per cent – while the general inflation rate rose by just 25 per cent over the same period. Despite the current crises, these costs have not fallen significantly, while the uncertainties surrounding new ESG regulations and financing have increased.
If, despite these challenging circumstances, a property developer does decide to go ahead with a planned project, it is absolutely crucial to precisely define the target group of potential buyers from day one. All too often, developers become too focused on the property’s features and potentials, and neglect the social mix and existing infrastructure in the surrounding area.
Analysing social factors may initially seem like nothing more than common sense. For example, a developer in Hamburg is hardly likely to plan a residential project exclusively for families in the business-oriented HafenCity district. Instead, they would look at somewhere like Winterhude, Lokstedt, or Eppendorf. For the same reason, it makes no sense to rely on generic, one-size-fits-all solutions simply because they have proved successful in other locations.
The Sinus Institute’s milieus are shifting
However, as always, the true challenges lie in the details. It is becoming increasingly apparent that the wants and needs within different social milieus are rapidly evolving – especially at the very centre of society. A recent study conducted by social researchers from the Sinus Institute in Berlin and the Bertelsmann Foundation in Gütersloh has revealed that the “middle class” is experiencing a significant decline in confidence in the future. Only one in four individuals in the “nostalgic-bourgeois” milieu and just one in two in the “adaptive-pragmatic” milieu, both of which constitute the middle class, are optimistic about the future. This represents a far more pessimistic outlook compared to the same study’s findings in 2022. This shift in sentiment may lead to more frugal lifestyles and a heightened desire for security. Consequently, when assessing residential property locations, this may in turn mean that certain leisure amenities, such as having a nearby venue for cultural events, are less important than traditional social infrastructure such as schools, daycare centres, parks and green spaces, along with high-quality medical facilities. In addition, the affordability of living space is also becoming even more of an issue for residents.
In contrast, the opposite is the case for the Sinus Institute’s upper-middle-class and upper-class milieus. The “educated elite,” “performance elite,” and the more artistic milieus are all now focussing on location qualities that were not considered important just a few years ago. Environmental and social sustainability criteria are now among the most significant factors in property concepts, construction methods, as well as in the immediate surroundings. In addition, many of these households have developed a far more international mindset over the last few years. For a property developer with a focus on these more affluent demographic groups, it can be well worth checking whether the school in the neighbourhood offers language courses in Mandarin, or whether rugby is among the sports on offer at nearby clubs.
Ultimately, it is the realities of the target groups’ lives that will determine which location factors are important in terms of pricing. Accordingly, property developers should adapt their concepts to the existing milieus – rather than expecting the target demographic to be drawn to their project and willingly relocate to a neighbourhood that may not suit them. The key challenge in neighbourhood development is to identify a diverse range of suitable target groups with varying economic and social backgrounds, and to create a contemporary neighbourhood concept that caters to everyone’s needs. Where infrastructure is lacking, it should be specifically developed within the neighbourhood. Neglecting or disregarding these factors – or even merely understating their importance – poses a significant risk to the long-term sustainability of any project.
Mobility is the common denominator
It therefore makes no sense to generalise about which location factors are the most value-determining – with perhaps one exception. In today’s world, modern mobility concepts and the reduction of private transport play a crucial role in nearly every new property development. Of course, locations in the suburbs are still more car-centric than those in city centres, which means more consideration needs to be given to the practicalities of parking and a host of other small (and sometimes large) details.
However, a decreasing number of people across nearly all social milieus now depend on their own personal vehicles. And the already heightened environmental awareness among younger generations is expected to further amplify this trend in the future. Convenient access to efficient public transportation systems and the availability of car-sharing services are already having an increasing impact on the achievable rental and purchase prices of residential properties. As a result, these factors are becoming increasingly important. And not only in urban centres, but in outlying areas, too.