Microliving and student accommodation offer high yields

The shortage of housing in urban centres also impacts those who need accommodation at short notice.

May 07, 2019

The shortage of housing in urban centres also impacts those who need accommodation at short notice. Students traditionally fall into this category, and there are more of them than ever before: almost 2.9 million people were enrolled at German universities and higher education institutions during the winter semester 2018/2019. Horror stories about students spending months on friends’ sofas are no rarity, and those who fail to find accommodation in the private rental market are also seldom successful in finding a solution from the student services associations (Studentenwerke). There are not nearly enough rooms to meet the ever-growing demand. This creates an opportunity for alternative concepts such as microliving, i.e. furnished apartments measuring around 18 to 25 square metres, and private student halls of residence.

This market is still relatively underdeveloped in Germany. However, total investment in student housing options reached USD 17.2 billion in 2017 – USD 1.2 billion more than in the previous year. This capital is strikingly international, with the share of cross-border investments exceeding 50%. Unsurprisingly, the largest European transaction market is the United Kingdom – more than EUR 3.5 billion was invested in student housing in the real estate hotspot during the course of 2018, while the rest of Europe combined reached a total of around EUR 1.7 billion. The Netherlands accounts for 45% of this figure, with Germany taking a good second place at a 26% share.

Lifestyle also influences the market

This value could grow considerably in the near future. In addition to a lack of urban living space, demand for a particular lifestyle is also helping to drive this development. The growth in sharing communities and coworking spaces demonstrates that a sense of community is important to the younger generation. “Requirements are shifting among well-educated young people in particular, with living spaces transforming into spheres in which they can gather experiences. The living environment should enable experiences and exchange, but also flexibility,” explains Dr Konstantin Kortmann, JLL Head of Residential Investment Germany. Reduced-size, fully furnished personal spaces with communal rooms also make it easier for new arrivals to make social contacts. In turn, this satisfies the demands of a younger, more mobile population: “Today it is typical to complete a bachelor’s degree in one city and a work experience placement in another before switching to a different university to take a master’s. The residential market must be able to accommodate the changed reality of people’s lives,” adds Kortmann, describing the typical route young people take through their higher education. In the student housing hotspots of the UK and the Netherlands, specially tailored operator concepts such as The Student Hotel, The Collective or Zoku have developed, and these are now increasingly making their way to Germany.

Mobility generates consistent demand

There are therefore high expectations of this asset class; indeed, the increasingly academic nature of our society means that demand is unlikely to cool off. The above-average prime yield of currently 7.5% is also interesting for investors. “While this yield is high, it should also be considered that these are generally fully furnished apartments of a higher quality. As a result, the maintenance costs are also considerable,” explains Tobias Köhler, JLL Team Leader Residential Investment.

Despite this minor limitation, microliving will attract the interest of investors for a long time to come. And it is not only students who are driving the market – the urban working world remains heavily influenced by the need for mobility. For many professionals, regularly working at different locations is now a normal part of their lives, as are more frequent job changes than decades ago. For this clientèle, too, new residential space is constantly needed at short notice. And there are also the many commuters who prefer a functional second home to travelling long distances on a daily basis.

Low rents compared to the rest of Europe

Admittedly, high-quality microliving is not cheap, even in the student housing segment. However, rents vary more than in other segments, which is a reflection of the sheer diversity of concepts: residents of student properties pay between €41 and €225 per week. This puts Germany at the lower end of the continental scale, even behind Italy, which is otherwise far cheaper in terms of living expenses. However, the United Kingdom remains the undisputed leader, with rents ranging from €110 to €650.

Dr. Konstantin Kortmann
Head of Residential Investment Germany, Member of the JLL Strategy Board Germany
Tobias Köhler
Team Leader Residential Investment Düsseldorf