Small is beautiful -and the news is out.
Europe is abuzz with change, and new lifestyles are being embraced. In Germany, for example, the Federal Statistical Office predicts that by 2040 one in four people will live alone -a vastly different outlook from the turn of the century. Millennials are getting married later, putting careers first in a fierce focus on independence. And with time a rare commodity, people don’t want to waste it on a long commute.
Enter the growing lifestyle trend of micro-living. Otherwise known as the future of making limited space work in flourishing European cities. Expansive, cluttered apartments are a thing of the past. Minimalism is the future of city-centre living.
A classic characteristic of micro-living is that it is suitable for singles and, occasionally, couples. One might find this a disconcerting factor when looking at the rapid global population growth. A more accurate benchmark, however, is to measure your investment against the trend of household sizes. For example, the outlook for micro-apartments in Germany, Sweden or Austria is dramatically different to that of Ireland or Poland.
Germany is one country particularly primed for micro-living. As you will see by the below graphic representation of its household structure, single households will rise to an alarming 19.3 million by 2040.
According to Cushman & Wakefield, 2018 saw an increase of 85% on the previous year in transactions for micro-apartments, bringing the total to EUR1.5 billion. Berlin, Hamburg and Frankfurt in particular saw a large growth in the market. In fact, Germany as a whole has the highest investment in micro-living in the European Union.
Due to the large number of young working professionals and students embracing convenient living, micro-flats are usually located near key employment nodes and the best universities.
Europe is a mecca to highly-skilled immigrants and offers some of best education in the world. Key cities are seeing a growing demographic of young working professionals and international students, drawn to fruitful job prospects and outstanding universities.
Paralleling this trend is a direct growth in demand for micro-apartments.
Considered a very lucrative market, in 2018 alone, the European student accommodation investment landscape saw a transaction volume just short of EUR10 billion.
According to UNESCO, the UK, France, Germany, Italy, The Netherlands, and Spain are among the top 20 destinations for global students studying abroad. This correlates with Corestate’s ideal markets for micro-apartments as seen in the below graph.
In addition to this, Cushman & Wakefield found that there is a clear correlation between micro-apartment buildings under construction and urban areas in which demand for residential property is highest. Locations like Berlin, London and Vienna are the leading cities of education and have buoyant job markets, it is no surprise that these are the places fervently jumping on this new lifestyle trend.
There are 3 main sub-sectors of micro-apartments. These are namely: serviced apartments, student accommodation and furnished micro-apartments. The commonality among them all is the convenient location, furnished-nature and shorter-term leasing.
One mistake to make is to assume that the only target demographic is the youth, although currently it is the largest market. With the world becoming so globally accessible, commuting and frequent business trips are a way of life for a large share of working professionals.
Many of which do not wish to live in hotels as they prefer the privacy and a space to make their own. This demographic further elevates the rental prospects as luxury living becomes compact.
Micro-apartments are becoming relevant in several phases of life due to changes in society and demographics. This makes property investment in micro-living a multifaceted opportunity for all generations. There are young adults requiring student housing, new working professionals branching out from families and expats and commuters of all ages who prioritise convenience. In future, there could even be a market for the elderly with mobility constraints to benefit from assisted micro-living. As the housing supply pipeline narrows across European cities, the future of this trend has countless possibilities but the one certain forecast is growth.
Property has one of the more secure income generators of all the asset classes as it is not as heavily benchmarked to the economy. If trouble looms for the stock market, people still need places to live and with populations growing exponentially, the security is further cemented each year.
It’s important to diversify your portfolio with a real estate investment, but often the biggest concern is the substantial lump sum of capital needed to finance the purchase. This is particularly an issue in sought-after areas.
Given the smaller property size of micro-apartments, the entry point for investors is much lower than that of a 1- to 2-bedroom apartment. It is a great opportunity to get a foot on the property ladder. Moreover, the lower price presents the opportunity for property investors further up the ladder to purchase more than one apartment, so the risk is spread across multiple sources.
There are many income benefits to micro-apartments but two particularly stand out. The first is that, when done well, their appealing modern amenities combined with a central location make the return on square metre comparably high while still being in the price range of a far larger demographic. Furthermore, they generally have lower running costs and are more eco-friendly due to their size and new-build nature.
The second income benefit is in the short-term nature of the lease. It is the custom in many European countries like Germany to rent on a rolling lease, which means to begin the process as a tenant, there is usually vigorous credit history scrutiny and a 3-month security deposit. Micro-apartments take all this hassle away. Moreover, the buy-to-let investor benefits as the 12- to 24-month contractual period allows more price elasticity to increase the rent according to demand.
In terms of investment security, one has to look at the facts. A definitive figure cannot be placed on the overall supply of micro-apartments because there are so many different segments to micro-living.
Given that the largest portion with measurable data is student housing, we will base further analysis on those metrics by Cushman & Wakefield. To date, primarily 60% of investment in the student housing segment has been domestic, with a further 28% coming from European countries. Seeing as this is a relatively new concept and demand is rapidly growing, investor confidence remains secure that the market for resale will be particularly fluid.
Furthermore, it bodes well for security that the growing youth are the largest sector using micro-living. It means the investment is not correlated with economic fundamentals but rather the value placed on career prospects and education. Micro-apartments are therefore a defense investment and an ideal risk diversification strategy (Corestate).
● Students, international young professionals and a growing number of singles fuel a fervent demand for micro-living.
● The high quality, flexibility and lower rent in central locations are key features to tenants.
● Micro-apartments are attractive to risk-averse investors as occupancy rates soar.
To learn about IP Global’s latest opportunity in micro-living, click here.
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