Wolfsburg. From core, to value-added, to opportunistic. Overnight.

Every year German property advisers Dr. Lübke & Kelber produce an annual "Risk-Return Ranking" on Germany's 150 biggest cities. The study is designed to highlight 'hidden champions' outside Germany's Big 7 cities, and determine in which cities investment in residential real estate could prove very attractive, given a certain *'locational risk' weighting attributed to each city.

Calculating this risk weighting is Dr. Lübke & Kelber's secret formula, but it certainly throws up some interesting investment ideas, and highlights cities that might not be on every investor's immediate investment radar. We've always found it a very useful tool.

This year's top 'hidden champion' and best-kept investment secret turned out to be none other than Wolfsburg, home of Germany's (and the world's) biggest carmaker, Volkswagen. Leaving aside the events of 3 weeks ago, this was the city, among Germany's numerous B- and C-cities, that in March this year represented among the best risk-adjusted residential investment locations in the land.

We don't for an instant doubt the validity of Dr. Lübke & Kelber's methodology. How could they have known of the duplicity being perpetrated up in the top management boardrooms of the car manufacturer that dominates its town like no other Germany manufacturer in the country?

The city of Wolfsburg, with a population of 120,000, IS Volkswagen, for all intents and purposes. 70,000 workers are directly employed by Volkswagen, and tens of thousands of others in the city and surrounding areas work for suppliers and affiliates. Almost every family in the town has somebody who works for the company, if not several. It's the country's financially strongest city, with the highest economic output per head of population.

Most of the city's real estate is owned by Volkswagen, there's a Volkswagen bank, a Volkswagen real estate dealer, the Volkswagen soccer team VfL Wolfsburg is sponsored by and plays in the Bundesliga, there's even a Volkswagen sausage factory in the town.

Nobody right now can tell what the impact of the Volkswagen disaster will be on the German economy, quite apart from on Volkswagen itself. German TV crews, despatched to Wolfsburg to bring back colour reports, show a city tightening up with fear as to what might be coming down the pike. Workers scurry past the cameras, faces hidden, unwilling to comment.

In a week when overall German unemployment reached a ten-year low, and with the German economy riding high, the cuts at Volkswagen have just started. Work shifts are being cancelled, freezing hires imposed, spending embargoes implemented. Volkswagen employs more than 270,000 people in Germany, and accounts for more than 1.5% of all German employment. These cuts are going to be felt.

It's not quite "What's good for General Motors is good for America", that much-misquoted response by GM's legendary CEO Charles "Engine Charlie" Wilson, but there's no doubt that the reverse is partly true – the fines and penalties, the bans on market access, the loss of market value. plus the sheer inestimable costs of withdrawing millions of cars and the damage to its reputation across its twelve brands, will weigh on the company for years to come. The shell-shocked employees in Wolfsburg turning away from the cameras seem to understand instinctively the portent of this catastrophe.

The Volkswagen debacle underlines yet again what Nassim Nicholas Taleb, he of the Black Swan fame, would describe as the mis-pricing of risk – in this case, of cluster risk. The immediate prospects for Wolfsburg real estate have just fallen through the floor – it doesn't take a clairvoyant to forecast the city won't be next year's 'hidden champion' again.

But what of the bigger picture? As nearly 37,000 real estate professionals descend on Munich this week for the annual EXPO REAL, it's fair to say that not everybody is going to be distraught about the local markets of Wolfsburg, Ingolstadt or Zuffenhausen, other Volkswagen cities. Quite the contrary, German real estate is riding higher than ever before. Foreign investors are nearly back to the pre-crisis peak level of 55%, and transaction volume is likely to surpass €50bn this year, a new record.

Demand for German core property is so hot that the concept of 'core' is practically losing its meaning. The big banks are withdrawing from all but the biggest cities, leaving financing of regional engagements to the Sparkassen and the alternative lenders. Big German pension funds are starting to look beyond the local market and gearing up for major global expansion, including into the USA and Asian markets, for want of adequate opportunities at home.

This won't all happen at once. As Germany rightly celebrates this weekend its enormous achievements in the twenty five years since re-unification, it's bracing itself for new challenges as it grapples with waves of new arrivals whom it has promised to house, feed and integrate. Just as a quarter of a century ago, there is a rumbling in the streets that hints at big changes afoot – just as large swathes of the population are digging in their heels to prevent any change to their hard-earned sense of comfort and well-being. What lies ahead, we ask?