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LEIPZIG, Germany (Reuters) - With its cheap rents, dance clubs in abandoned factories and a pulsing arts scene, Leipzig has a chance to shed its image as the poverty capital of Germany, but some locals resent the new-found popularity that has earned it the nickname "Hypezig".
Famous for the anti-communist protests at the Nikolaikirche church that helped bring down the Berlin Wall, Leipzig has bucked the trend of most towns in the former German Democratic Republic (GDR), which have grown old and shrunk since reunification.
The arrival of big-name employers like DHL, Amazon and BMW in the mid-2000s, and the opening last year of the first underground railway line, have underpinned growth in the city of 530,000, located 100 miles southwest of Berlin.
German Chancellor Angela Merkel, philosopher Friedrich Nietzsche and writer Johann Wolfgang von Goethe all studied in Leipzig, whose 37,000 students give it a dynamic feel.
But mention "Hypezig" beyond the factories and basements converted into galleries, studios, vegan eateries and music venues, and locals react the same way many residents of east Berlin do after a decade of gentrification in the capital.
"We need to watch how the city develops as a whole," said Juliane Nagel, a leftist member of Leipzig's city council, who worries that the gentrification could exacerbate inequality, as incomes and rents rise in some boroughs and stagnate in others.
Resident Andre Herrmann is so incensed by the cookie-cutter media coverage of the city's supposed boom that he documents it on a Tumblr site called "Hypezig - Please Stay in Berlin!"
"There's a discrepancy between the city as it is, and the city you see in the media," said Dominik Krauss, who is working with Alexander Dietze to convert the deserted department store Kaufhaus Held into a cultural complex.
Leipzig's abandoned buildings offer a blank canvas for entrepreneurial types like Krauss and Dietze to create new community spaces, but they're also ripe for speculative practices by firms looking to capitalize on the hype.
Although the city's average residential rent hovers around 5 euros per square meter, apartment buildings bought and renovated by large real estate firms in the western part of the city are now asking upwards of 8 euros per square meter.
"It's not a problem to build these expensive lofts," Krauss said. "The problem is finding someone who can afford to live there."
Behind the crumbling edifices emblazoned with graffiti, Leipzig's residents face social and economic uncertainties that threaten to sabotage the city's future.
The unemployment rate has nearly halved in the past decade but the city was crowned "Poverty Capital of Germany" by the media in 2011, when average household income was half the national average.
It has since lost this ignominious title to Dortmund, but more than a quarter of the population still live in poverty, meaning they earn less than 60 percent of the average income.
Even some relative newcomers like French artist Nans Quetel, who was drawn to Leipzig in 2009 by the creative atmosphere and affordable rents, worry that the arrival of brunching hipsters could spoil the city's gritty bohemian appeal.
"Gentrification is normal," he said. "But what kind of gentrification? And how?"
Leipzig's centre-left mayor, Burkhard Jung, has other concerns. He said plans to build a refuge for asylum-seekers and a mosque had revealed a surprising undercurrent of hostility to foreigners.
Although the number of non-Germans moving to Leipzig has increased over the past five years, the city remains relatively homogenous compared to other major German cities.
"I have experienced xenophobia to a degree that I would not have thought possible in Leipzig," Jung said in an email exchange with Reuters.
Like many mayors in the former GDR, he worries that the expiry in 2019 of the "Solidarity Pact" whereby western states fund reconstruction in the east will make it difficult for Leipzig's infrastructure to keep up with its population growth.
Reporting by Monica Raymunt; Editing by Stephen Brown and Noah Barkin