The market for microapartments in Germany will grow strongly in the coming years, according to a new study by Cushman & Wakefield. Development projects currently in planning and under construction form a strong pipeline. At the same time, the market in Germany is still very young, open to new players and will continue to professionalise.
Dynamic project development pipeline
Around 500 development projects providing 50,000 student and business apartments will be completed in Germany by 2025. Most of the new residential projects will be realised in the top-7 cities and university towns. Although the Studentenwerke student unions were still the largest operators of student accommodation in Germany in 2020, with just under 200,000 apartments, there was already a stock of around 50,000 student and business apartments of private providers, a large proportion of which were in the top-7 cities.
Prime yields for micro-apartments
At 3.30% (2020), yields for microapartments continue to offer a premium over traditional housing - but the gap has closed appreciably in recent years. The average all-in rent nationwide is around 520 euros per month. The spectrum ranges from about 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 the offers and their tenant clientele. The average size of an apartment is 20 to 25 square metres. Small apartments start at 15 square metres, the largest are up to 40 square metres.
Low market entry barriers for new players
Markus Elmer, Co-Head of Residential Advisory Investment Advisory, Cushman & Wakefield, explains: "Low market entry barriers enable new players to quickly establish themselves with their brand and their own concept. On the one hand, this enables extensive and rapid growth in micro-living offers. On the other hand, this can lead to accelerated market consolidation. One thing is certain: it is an exciting market with many options for players who are ready to act now."
Lack of product and Covid-19 pandemic slow development
At around €660 million, the transaction volume in the micro-living sector in 2020 was significantly below the peak of 2017, when investment volume for microapartments in Germany reached just under €2 billion. Simon Jeschioro, Head of Investment Advisory Cushman & Wakefield sets the context: "Apart from the Covid-19 pandemic, a major reason for this was the lack of available product. Investor interest remains high. Due to the micro-living pipeline being well-filled by various developers and operators, increasing transaction volumes can be expected over the next few years."