The location of a property is the decisive factor for both its market value and its residential value. The location can be looked at from two different perspectives. For this purpose, a distinction is made between macro-location and micro-location.
Both ways of valuating a property are useful for private buyers as well as for real estate investors when it comes to deciding whether or not to purchase a property. We explain what the criteria mean, the differences and what needs to be considered when choosing a location.
Macro-location is defined as the geographically distinct sub-market in which a property is located. This can be a district, the city itself or even more broadly the region, the state or a greater geographical area.
Basically, one tries to measure the attractiveness of a region or the city in which the property is located. For this purpose, the bases for evaluation are further subdivided into soft and hard criteria. "Hard" factors are measurable in terms of numbers, figures and statistics. This includes the local economic strength and its diversification, key figures on per capita income and unemployment, the transport infrastructure (airports, railway stations, expansion of local public transport, etc.), educational institutions and population structure.
The pecuniary attractiveness of cities and regions is based on symbiotic advantages. The regional concentration of flourishing and expanding companies in turn influences the structure of the people living there and can promote the growth of the population. Colleges and universities that attract young people and guarantee a high level of education have a positive influence on the macro-location and assessing the value of real estate.
Soft factors attempt to look at the emotional appeal of a location. What are the reasons that may motivate people, tenants and investors to buy - or not to buy - a property? For example, what is the recreational value? Are there interesting offers for young families? Is there a range of cultural facilities and events available that will ultimately have a decisive impact on the region's image?
While the macro-location focuses on the big picture (macro in Greek: big), the micro-location (micro in Greek: small) describes the immediate surroundings of a property or building. Considered are, for example, the condition of the houses in the neighbourhood, the connection to local transport and the motorway network as well as accessibility to shops for daily needs. What kind of infrastructure does the neighbourhood have? A wide variety of aspects are assessed here, from restaurants to local parks and recreation areas for evening jogs. The direction in which the property faces and any permanent noise from heavy goods traffic or other sources of disturbance, such as aircraft noise, are also taken into account.
If it's a multi-family property or an apartment complex, the assessment of the micro-location extends to the inside of the property. Here, too, there are some more and some less attractive locations. Ground-floor units are often unpopular, whereas those facing the quieter rear with a garden view or the courtyard location are much more in demand. Ground-floor units are often unpopular, whereas the more quiet units at the rear facing the garden or the inner courtyard are much more in demand.
Depending on the macro- and micro-location assessment, a four-level classification system has been established for the residential sector, ascending from secondary location to average, good and prime location.
Commercial properties are also divided into categories for the purpose of determining their value. These are 1A, 1B, 2A, 2B, C and D.
In most cases, a property is not a short-term investment. Both the lender and the private buyer or tenant consider their investment to be long-term or even a lifetime decision.
Investors align their leasing strategy and preferred tenant base with the specific characteristics of the micro- and macro-location. Private individuals also want their future home to match their personal lifestyle and priorities as closely as possible.
It is therefore important not only to look at statistical analyses from the past or present, but also to develop a visionary assessment for the future. Is the trend stable, upward or possibly downward? Interesting information on this can be obtained, for example, by inspecting development plans and already approved building projects at the respective building regulations office.