May 15, 2020

Good reasons for investing in micro-living

Modern city densities, urban development pressures, and the uncluttered mobile lifestyles of young professionals and students are among the many factors that have made micro-living increasingly popular. It is a fast-growing global trend that is becoming well established in some of the most progressive, alluring cities and property hot spots around the world.


But what exactly are the top reasons why people are investing in micro-living?

Demand is rapidly rising

Considering that micro-living mostly caters for single people, measuring it against rapid global population growth may, from an investment perspective, provide a distorted picture. The more accurate benchmark would be to measure one’s investment against trends in household sizes in different places. Using this measure, the trends in Sweden, Germany or Austria differ dramatically from those in, say Poland or Ireland.

With Germany enjoying the highest investment in micro-living in Europe, it is clear that this country is particularly well primed for this. Market research by international property consultancy Cushman & Wakefield showed that in 2018 Germany experienced an increase of 85% over the previous year with micro-living transactions totalling EUR1.5 billion, with particularly high growth in Berlin, Hamburg and Frankfurt. In terms of Germany’s national household structure, it is projected that single households will increase to 19.3 million by 2040. That will create a huge market for micro-living.

Best locations

Many tech companies, professional firms and top higher learning institutions are concentrated in Europe’s fastest growing cities. As a result many highly skilled immigrants, young professionals and students are drawn here and seek convenient living, which has made micro-living a popular and ideal option for them. The trend of these cities drawing high-skilled immigrants and professionals as well as international students, is mirrored directly in the parallel trend of the growth in demand for micro apartments.

As a lucrative market, the European student accommodation investment landscape in 2018 alone saw a transaction volume just short of EUR10 billion. And global students studying abroad have been shown by UNESCO to favour the UK, France, Germany, Italy, The Netherlands, and Spain among the top 20 destinations.

Furthermore, the research done by Cushman & Wakefield shows a clear correlation between micro apartment buildings under construction and urban areas in which demand for residential property is highest. Some of the leading cities in this regard are Berlin, London and Vienna.

Different preferences & ages

It would be a mistake to assume only young people are attracted to a one-type-fits-all market. In reality there are 3 main sub-sectors of micro-living – student accommodation, serviced apartments and furnished micro apartments. What they have in common is convenient location, being ready furnished and shorter-term leasing.

And while young people currently make up the biggest segment of this market, they are by far not the only ones. In a highly connected world with frequent business trips or commuting taking place, many professionals seek a private space of their own away from home, rather than staying in hotels. This factor contributes positively to the rental outlook of compact luxury living.

Micro-living is also becoming increasingly sought-after across different age groups due to changes in demographics and society. It has become an increasingly attractive option for new professionals, students requiring housing, expats and business commuters of all ages who seek convenience. It is already being touted that a future additional market could be elderly people with mobility constraints who could benefit from assisted micro-living. The most certain factor forecast for the micro-living market is growth.

Diversification with low initial capital requirement

Property has always lent itself as a good option for diversifying one’s investment portfolio. That’s because as an income generator it is not as heavily benchmarked to the economy. If the stock market enters troubled times, people still need a place to live, while exponential population growth further entrenches security.

The biggest concern with diversifying into property is usually the substantial capital amount required to finance the purchase at the outset.

The more sought-after the area, the higher this sum will be. But given the smaller property size of micro apartments, the initial capital outlay for investors in a micro apartment is substantially lower than for a house or a 2 or 3-bedroom apartment.

It’s an ideal way of getting into the property market, while the lower price allows an opportunity to later acquire additional property, thus spreading the risk.

Income benefits of a secure investment

Because of their appealing modern amenities and ease of living combined with a central location, the income potential of micro-apartments is particularly high. Yet they remain in a price range of a much larger demographic segment.  In addition their running costs are usually much lower, and they are more eco-friendly due to their size and new-build nature.

Another income benefit is the short-term nature of the lease that usually applies. The custom in European countries like Germany is to rent on a rolling lease, beginning the process as a tenant with a vigorous credit history scrutiny and a 3-month security deposit. But micro-apartments with their tendency towards short leases removes all of this hassle. In addition, the buy-to-let investor also benefits as the 12- to 24-month contractual period allows more price flexibility, so rent can be increased according to demand.

To determine investment security, many facts have to be considered. With so many segments within the micro-living sector, we believe a definitive figure cannot be placed on the overall supply of micro-apartments. But given that student housing accounts for the largest portion with measurable data, Cushman & Wakefield have produced valuable metrics in this regard. It has thus been found that to date, primarily 60% of investment in the student housing segment has been domestic. A further 28% has come from European countries.

As a relatively new concept with rapidly growing demand, investor confidence remains secure with a market for resale that will be particularly fluid. Another plus factor in terms of security is that the growing youth sector is the largest sector attracted to micro-living. This means that rather than economic fundamentals, it is the value placed on career and education prospects that defines the investment. Micro apartments can therefore be seen as an ideal risk diversification strategy and a defence investment.

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