Even before the onset of the coronavirus crisis there were indications that the market in Germany for student accommodation and micro-living apartments was cooling down. On May 5th we published a guest column by Professor Günter Vornholz on prospects for the sector - (https://www.refire-online.com/guest-columns/student-accomodation/) - which issued a clear warning that the market – which had been growing strongly in recent years - was likely to be cooling imminently.
Now indeed the market has collapsed, with not only corona to blame, according to the researchers over at property adviser CBRE. They put the investment volume for student housing and micro-apartment deals in the first half of 2020 at just €160m, fully 67% the same volume transacted in the same period last year. Last year in the period 24 deals were transacted for about 3,500 apartments, while this time around it was only seven, for about 1,500 units.
According to Sebastian Schütte, director at CBRE Residential Investment, "The lack of individual properties and large portfolios" was responsible for the very weak first half of the year, although the prime yield had remained stable at 3.4%.
There is a negative effect from the corona pandemic, says Schütte, with the bigger buyers of the largest portfolios over the past few years now concentrating more particularly on portfolio development and target group optimization. They are currently less interested in sales, and are also holding back on further investment. New micro-apartment projects are largely being realized with the equity capital of project developers, with the banks reluctant to get deeper into financing in the sector.
CBRE still believes that foreign investors still see mileage in the German market, although the lack of supply and the "general conditions under rental, tax and construction planning law" has had a braking effect, according to Katharina Metzger, Senior Consultant at CBRE Valuation Advisory Services. CBRE is not expecting the market to change much however before the end of the year.
The extent, though, to which micro-apartments in all of Germany’s geographic markets were being lapped up by both investors and tenants prior to corona was recently highlighted in a survey carried out by researchers BulwienGesa on behalf of the Initiative Micro-Living (IML), a platform for analysing the usage of micro-living developments in Germany, and run by BulwienGesa. The researchers evaluated operating data from just over 20,000 residential units in 96 apartment buildings. One result: the occupancy rates in January this year averaged 93%. There were hardly any differences between the city categories A, B or C. And regardless of whether the total rent was around €1,000 or significantly lower - the level of rent had no influence on the occupancy rate.
There ARE other hindrances to the development of the sector. There will be no regular operation at universities in the coming winter semester, for example, so those willing to learn from abroad will probably prefer to stay at home. Even before this, some people were uncomfortable to note that a lot of the newer developments were increasingly in the high-priced rental segment, putting further pressure on tenants unwilling or unable to pay the higher rents.
Still, new players continue to enter the sector. The Munich-headquartered Savvy plans to build micro-apartments for up to €1bn in Germany’s seven top cities and manage them in its own portfolio. Savvy is owned by Empira via a fund in Luxembourg, and is being headed up by Michael Haupt, a 30-year industry veteran whom REFIRE first met when he headed up Bouwfonds in Germany, and subsequently headed up Munich-based developer Isaria Wohnbau.
The plan is to develop a portfolio of 20 projects and at least 3,000 micro-apartments in good inner-city locations in the Big 7 cities, “by the end of next year at the latest”, according to Haupt. Savvy is already working on seven projects with 735 apartments or around 40,000 sqm of gross lettable area. There are two projects each in Berlin and Cologne, and one each in Hamburg, Munich and Düsseldorf, with Haupt estimating the project volume at around €250 million.
The most advanced project is in Berlin-Friedrichshain, which will replace existing properties at Kreutzigerstrasse 14-15 between Frankfurter Allee and Boxhagener Platz. The property, with 137 units, is scheduled for completion at the end of next year and will then have cost €38 million. Savvy wants to let these units for between 900 euros and 1,000 euros.
