Rising need for flexibility by urban nomads helps drive micro-living market

Operators of German micro-living and student housing accomodation are optimistic that the market is anticipating a return to the 'normality' growth path it was enjoying before the coronavirus pandemic, concludes the fourth market report from Initiative Micro-Living, carried out by researcher Bulwiengesa. 

The analysis included the operating data of 26,233 residential units, distributed across 132 apartment buildings nationwide.

The data already show that the business of the operators of small residential units has stabilised again, at least in part. For example, the occupancy rate of the apartment units surveyed has remained at 86% without change compared to the last edition of the market report from the spring of this year. 

Students are still the most important target group at 43%, but many foreign students are still being troubled by international travel restrictions. Not surprisingly, more than 85% of operators say renting to non-students as well as students from outside Europe is still very challenging.

The current survey recorded the highest average all-in rent to date for a micro-apartment, at €19.30 per sqm. On an individual residential unit basis, the most recent average rent was €538 per month, within the overall range of between €243 and €2,588.

Operators reported that, compared to spring 2021, rents have risen by about 10% on average - although this should be taken with a pinch of salt, as the portfolio composition has changed. On the positive side, however, the management costs of the buildings are moving downwards. While in spring 2021 these were still €6.11 per sqm of living space on average, the current survey calculated an average of €5.97 per sqm of living space.

The audience at a recent online webinar on Student Housing, Micro- and Co-Living heard that more international investors were becoming interested in investing capital in the sector, with the pandemic reducing the attractiveness of other asset classes such as office, retail and hotels.

Rainer Nonnengässer, chairman of German group International Campus, an early pioneer in the sector, said the sector had proved defensive and resilient, as well as increasingly professionally managed. “The development side historically has been dominated by Anglo-Saxon capital, which is the logical consequence of student housing being a long-standing asset class in the US and then in the UK. Now, slowly but surely, it has become a sought-after product in Europe, even by conservative investors.”

Talking at the start of the most recent winter semester, Nonnengässer highlighted the gulf between supply and demand for student accomodation. “We estimate that more than 600,000 first-year students are pushing onto the housing markets of Germany. Many young people who had to postpone their academic studies or the flat-hunting are eager to get started at long last. It is practically a double cohort of new and old first-year students from inside and outside Germany who will attend classes in person at the higher education institutions in metropolises and campus towns. As people adjust to the new normal, many international students will gradually return to German universities.”

“The situation on the popular Central-European residential markets is strained. In Germany, an estimated total of more than three million students today is matched by merely 260,000 beds offered by private and public-sector or non-profit student housing providers. Now, as then, there is a conspicuous lack of accommodation for students and career starters, with demand far exceeding supply. Moreover, the COVID-19 pandemic has made it crystal clear how important it is to have a sufficient supply of adequate dwelling and living space, and this is particularly true for students and career starters. The boom in the PBSA asset class took only a breather during the pandemic,” said Nonnengässer.

His company has recently launched a new brand focused on micro-living, differentiated from the company's student product, primarily branded under the name The Fizz. “When students finish university and start working they want a similar type of accommodation,” said Nonnengässer . “But we wanted to create and market a separate product because we believe that sooner or later young professionals have different requirements from students.”

Alexander Lackner, founder and managing partner at Hamburg-based neworld, pointed to forecasts showing that 84% of the EU's population will be living in cities by 2050. “This means that affordable residential accommodation in conurbations will become increasingly scarce. Finding a place to live will therefore pose a particularly tough challenge for young professionals. Co-living concepts including serviced apartments could be the answer to many questions raised by the urbanisation process. These offer young professionals apartments ready for occupancy and equipped with en-suite bathroom, kitchenette and add-on services."

"In addition, they have direct access to community areas, such as gyms, cinemas, roof terraces or shared kitchens, and get to join a community of peers. The coronavirus pandemic has shown: Especially the social component is something that will have to be integrated in modern residential formats, because social isolation can become a major issue. So, this is another reason for the trend toward smaller dwellings and extra community areas.”

Also talking at the recent webinar, organised by Berlin PR consultancy RUECKERCONSULT, was Amar Eskef, the head of data science at proptech 21st Real Estate, who had useful things to say about the quality of data being used to track the market for co-living, student and micro-accomodation. 

“Even before the pandemic, we saw an increasing interest in alternative types of use such as student housing and micro living, but the identification of suitable locations and analysis of local conditions increased significantly because of the COVID-19 pandemic.”

“The meaningfulness of the pre-corona market data has deteriorated significantly as a result of the pandemic, although today there is more reliable data for student housing and micro living,” said Eskef. “Let's be clear about one thing - there is not just one best fitting location for a project. A location is only as good as it serves the preferences of the user groups or the investment profiles, regardless of whether it is student housing and micro living or the classical sense of residential or office. 

"Our market and location analysis tool RELAS offers market players the opportunity to decide for an individual combination of various parameters such as real estate market data based on their own market expertise. Therefore, we offer for socio-demographic data, points of interest, connection and accessibility and to use this as the basis for a high-quality location search use."