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Microapartments in the pandemic: Strengthened or dead?

Verena Bauer • 23/04/2021
Microliving Microliving

How high-yield microapartments are defying the Corona virus.

 

The microliving concept, with ready-to-occupy, fully-furnished small apartments, was all the rage until early 2020. Both tenants and investors loved it. Then the coronavirus hit, and the world became a different place.

Lockdowns, travel restrictions, and video conferencing have characterized everyday work ever since. Does this mean the end of this still young asset class? Markus Elmer, Co-Head of Residential Advisory Investment Advisory at Cushman & Wakefield, talks about why he is convinced of the future of this concept.

 

Mr Elmer, who uses miniapartments anyway?

Microliving is not simply about less space. It's primarily about the service behind it - about living concepts that are adapted to the needs of students, commuters and company employees, for example. Some are looking for something close to the centre and flexible in terms of rental agreements. Others are seeking community and smart living. The offers are therefore correspondingly diverse and novel-creative.

 

Until the virus came in March 2020 ..

... and consigned us all to working from home, social distancing and travel restrictions on us. Operators of serviced apartments with short-term tenants naturally felt the effects and experienced significant declines in occupancy. By contrast, residential concepts have come through the pandemic comparatively well so far. Nevertheless, investment fell by around two-thirds.

 
Microliving Microliving

Is microliving one of the victims of the coronavirus?

No. The current market situation merely reflects uncertainty, but does not represent a trend reversal. For example, around 500 development projects with 50,000 student and business apartments are expected to be completed in Germany by 2025 - which would double the current stock of privately operated properties in this asset class. That's because Covid-19 has no influence on the major demographic and lifestyle trends. The number of single households is rising. Already, construction completions are insufficient to meet the demand for one- and two-bedroom apartments in major cities.

And flexibility in the world of work is also a trend that Coronavirus has tended to accelerate. Project work, working from home and office presence in alternation, location hopping - this requires a combination of furnished living, service and a short-term lease being available. Digitisation is also gaining further momentum. With smart living, app services and parking space booking systems, the microapartments, which are mostly aimed at a young target group, are setting new standards here.

 

What would you regard as a typical microapartment?

The average size is 20 to 25 square metres. Small apartments start at 15 square metres, while large ones range up to 40 square metres. The average all-in rent nationwide is around 520 euros a month. The spectrum ranges from around 260 to 1,300 euros per month, with the highest prices being achieved in the top 7 cities. The reasons for this are quality and location as well as differences in supply and tenant clientele. 
 

 

What role does Germany play as a location?

International investors have long been keen to invest in Germany, where the economic and social situation is considered solid. Residential real estate in particular is being given an increasingly weighting in portfolios. And economically, Germany is also considered relatively stable during the pandemic. On the international investment market, German real estate and the A-locations are seen as a safe haven even in the current situation. At 3.3%, yields for microapartments still offer a higher return than classic residential projects. However, the gap is increasingly closing.  
 
Microliving Microliving

So rather: In the crisis lies opportunity? 

There is definitely an opportunity for the market to emerge stronger from the pandemic. Low market entry barriers enable new players to quickly establish themselves with their brand and their own concept in the market. This makes substantial and rapid growth in the range and amount of microliving on offer possible. One thing is certain: It is an exciting market with many options for those who are ready to act now. In our view, the greatest growth potential is promised by expanding the target group to include the rapidly growing older segments of the population.

 

Would that mean saying goodbye to young professionals as a target group?

The microapartment market offers considerable opportunities for the future if investors and operators develop concepts tailored to particular target groups. The demographic structure in Germany shifting towards older age groups. Ever more people want to actively participate in life, even at an advanced age. Many of them are therefore looking for microapartments close to the centre and with high-quality furnishings that meet their requirements and living situation. This is a solvent additional target group for small apartments and microapartments, especially if services, such as a laundry or mail service, are also integrated into the living concepts. This does not mean saying goodbye to young professionals as a target group, but opens up the microliving segment further.
 

YOUR CONTACTS

Simon Jeschioro Germany
Simon Jeschioro

Head of Investment Advisory

  

simon.jeschioro@cushwake.com

+49 69 50 60 73 260

Send me a message.

Markus Elmer
Markus Elmer

Associate Capital Markets Investment

markus.elmer@cushwake.com

+49 69 50 60 73 238

Send me a message.

Topic relevant

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The market for micro apartments is becoming increasingly attractive. The segment has developed into an independent asset class. National and international investors are showing interest in this type of  real estate and operator market and are looking to get started. At the same time, the market is still very opaque and, compared to other countries, is very fragmented.
Simon Jeschioro • 14/04/2021
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Focus on residential asset class

International real estate consultancy firm Cushman & Wakefield (C&W) is broadening the scope of its investment advisory activities: In the future, the team will focus more on the residential asset class. To this end, C&W has appointed Markus Elmer (30) and Jan-Bastian Knod (30), both based at C&W's Frankfurt office, as co-heads of Residential Advisory. 

18/03/2021

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