Microlocation, Macrolocation: Property location valuation

Key data about the property

Property location assessment is a complicated endeavour that requires a lot of preparatory work. Before we start with the actual analysis, we first have to look at the basic data of the property as part of the property location analysis Strictly speaking, this has nothing to do with the location of the property in the classic sense, but it is nevertheless very important for our analysis.

First of all, we ask ourselves: What type of property (house, terraced house, apartment, etc.) is it? And what different components does the property have? This includes, for example: terraces, balconies, their orientation, orientation of windows in important living areas, etc. Why is this important?

Example: house

In the case of a house, it is important to distinguish between a terraced house and a detached house. A terraced house benefits from the energy of neighbouring houses, but is less exclusive. Both have advantages and disadvantages. A detached house is more attractive to solvent tenants than a terraced house, as there is less need to take the neighbouring parties into consideration.

How large a terrace is and how it is orientated plays a decisive role. A south-facing terrace that faces away from other houses increases rentability more than a north-facing terrace with a view of the street. The point of orientation can of course also be applied to the windows of the most important living spaces. A kitchen where you can enjoy the sun in the morning is better than a north-facing alcove kitchen.

Apartment / flat as a type of property

Example: appartment

There is less to analyse in advance here. However, it must be clarified, for example, on which floor the apartment is located. If it is higher up, is there a lift or do the residents have to use the stairs to reach everything? Are there communal rooms, areas or an inner courtyard that invite residents to linger? Is there a balcony that makes the property interesting, and in which direction does it face?

For both types of property (houses and flats), it is also advisable to look at the section. Although this may sound absurd in the context of the property’s location valuation, it is not at all.

However, don’t forget to look at this lens if the property is an investment. Because then it’s not about whether you personally like it, but whether it fulfils the requirements for a certain tenant clientele. Of course, there are other attributes to consider depending on the property, but these would go beyond the scope of this article. However, the basic idea should be clear.

Micro-location analysis

Micro-location for properties

The next step in evaluating the location of a property is to look at the immediate surroundings, i.e. the neighbourhood and the street.

• Population structure:

  Are the young or the old, high earners or students, migrants or not more likely to live here?

• Infrastructure

  Are there good public transport connections? Can you get around by bike or do you need a car? Are there shopping facilities for daily needs nearby? Even if your own subjective view is often not a good assessment criterion, as an investor you can certainly ask yourself when analysing the location: Would I want to live here? Even better: Would my “dream tenants” want to live here? What facilities are there, from daycare centres to universities? Anything that is close to the property will increase its lettability. However, you should only draw conclusions once you have completed the macro-location analysis.

• Rental market

  What is the price per square metre for comparable properties? It is also important to find out whether the demand for rental space is high or whether you need to put more effort into marketing the property. This is where tools such as Geomap can help. These tools give you an insight into the rental and purchase market, including rental price/purchase price trends, average duration of offers, etc.

  The data is very expensive, but informative and an absolute must in order to be able to really assess the situation. We use these tools intensively for our clients. If you want to do your own research without spending a lot of money, you can use Immoscout. How long adverts remain online is more important here than the number of rental offers.

If there are too few references for comparable properties in the neighbourhood, an objective view of the location is hardly possible. At this point, it is advisable to either gather information locally (from fruit sellers around the corner, from hairdressers, from the city…) or to cancel the search for this location.

Our clients buy perfectly analysed investment properties developed by us. Over the years, we have carried out hundreds of property location valuations and find the properties that will still pay off in 10 and 20 years’ time.

Macro-location analysis

Analysing the macro-location

This keyword refers to criteria relating to the region or city in which the property to be valued is located.

• What leisure activities are available?

  The requirements of potential prospective tenants in this area also depend on the family structure. A family with children needs different offers than a sports-mad, young couple or young singles who want to savour the nightlife.

• What about the economy?

  Which employers are there? Is there sufficient diversification here or is there a risk of migration if one of the larger employers closes? Which sectors do the companies in the location belong to? Do these sectors have a promising future? What is the general availability of jobs and how high is the local unemployment rate?

• Key data on the population:

  Immigration is a decisive factor. If emigration is more prevalent, the question arises as to why and whether a reversal is likely in the near future. Demographic reports are very useful here. What is the purchasing power of the citizens? This can be used to find out whether upmarket or standard flats are more likely to be rented out and what the majority of people want in terms of fixtures and fittings.

• Labour market / educational offers:

  In order to categorise potential client groups, it is worth taking a look at the labour market and educational opportunities. These can give you a feel for what kind of tenants could potentially move in and also what budget they are likely to have.

• Additional questions for small towns:

  What are the connections like for commuters? Are there employers nearby that would justify the commute? This can be particularly interesting in Bavaria, for example, where the large cities are surrounded by wide suburbs. Once you have gathered all this data, you should now be able to assess whether the property is easy to let and whether the location is suitable for an investment. If so, you need to use this information to decide which type of prospective tenant is most likely to be interested in this property in this location.

Client identification

Tenant clientele

The next step is to use the data collected to decide to which tenant clientele the property can be let. It helps to ask yourself questions such as:

• Who is the cut suitable for?
• For whom is the location particularly interesting?
• Who is the current facility suitable for?

You can then use the data collection to check whether you have selected the right clientele. In the best case scenario, a property is suitable for several groups, in which case you should ask yourself: Would you prefer to let long-term or as expensively as possible? Is it worth remodelling the furnishings?

Once you have answered these questions, you can use an assumed rental price to calculate whether the property is attractive not only because of the location factors, but also because of the expected rent.

Assessment of potential

The final step in evaluating the location of a property is to determine how this particular location will develop in the future. To find out, it is worth taking a look at the local newspapers: Are there any upcoming construction projects that could have a traffic-calming effect? What are the political plans for this region, are there likely to be sanctions that will make development more difficult for companies or can we expect a policy that promotes certain value-enhancing conversions?

Sector perspective: How could companies in the city or neighbourhood fare in the future? For example, will a digital start-up ecosystem emerge that could attract many young, well-educated people? Or will old industries prevail that are doomed to decline sooner or later?

Generally speaking, you cannot work through a property location assessment according to a specific template; the questions you need to ask yourself will vary from property to property and city to city. This article is intended to give a sense of the directions to think in and can be used as a guide. Answering these questions often takes less time than finding the right questions.

Would you like to invest in property, but don’t have the time or resources to carry out a comprehensive property search and valuation? Our experts deal with this on a daily basis and will be happy to help you.