Stable income, fast-growing demand and increasingly short supply – these are the salient points of residential property as an asset class. Current trends such as increasing worker mobility, demographic change, the rise of single-person households and the growing number of international students are giving rise to investment opportunities. As a result, alternative housing types and flexible housing options tailored to different stages of life are in high demand.

The requirement for centrally located, compact apartments – as offered by the micro-living market – is growing significantly. The main driver of this development is the sharp rise in the demand for student accommodation. Since 2016 the number of international students has grown by 15 percent in Europe. Most international students live in France, Germany and Spain. As a result, there is a strong demand for student apartments. Demand for student apartments is high in Ireland as well, and there is a structural lack of supply. The number of international students has almost doubled in the past ten years in Ireland. 

However, the upward trend in micro-housing is also boosted by other factors. These include the growing number of single-person households and rising demand from young professionals, commuters and project staff due to an increasingly flexible world of work. The target groups appreciate the lower costs associated with moving into fully-equipped micro-apartments, and the opportunities for social interaction in the communal areas. The movement of people, particularly the young, into cities is also causing an increase in demand for micro-apartments. Another target group are senior citizens, for whom the supply of housing also lags far behind demand. Micro-apartments are generally very well suited to older people if they are designed to be accessible and have age-friendly fittings. Where needed, residents can avail of care and other services. Demand for age-friendly housing types, especially with assisted living services (senior and care living), is currently on the increase throughout Europe. 

This is because the European population is ageing rapidly: according to the EU Statistical Office, Eurostat, by 2050 the proportion of people in Europe over the age of 65 will increase to almost 30 percent from the current 20 percent¹.

Micro, senior and care living not only offer attractive solutions for tenants, but they also offer promising opportunities to real estate investors. By combining different property management plans and target groups in various regions, investors can achieve a targeted diversification of their portfolios, minimise risks, generate stable cash flows and profit from long-term market trends. The market for alternative forms of living is relatively young and offers a significant potential for growth. At the same time, the European housing investment market is currently offering attractive entry opportunities. In the third quarter 2024, yield was at a 10 year-high (4.1 percent). Student living stood at 4.9 percent and care living at 5.4 percent. 

The continued high demand for flexible and small-scale residential space is leading to a high occupancy rate in micro-apartment buildings. As shown by the 10th market report of the Micro Housing Initiative (IML) – a platform for owners, operators and managers of apartment houses – in Germany the occupancy rate averages 95 percent.² A total of 27,980 residential units in 128 apartment projects was analysed. At 584 euros per month, the average all-in rent was eight percent higher than in spring. The majority of IML members expects rents to increase between four and six percent per annum in the next months. 

At the same time, there is increasing interest among investors, and alternative residential sectors have grown steadily as a proportion of the total transaction volume: while between 2008 and 2012 they accounted for around 20 percent of the total European residential investment volume, their share has now risen to around 50 percent. Senior and care living doubled their share in the last about ten years. Student living operator real estate has recorded pleasing growth figures too. The high number of international students in France, Germany and Spain resulted in the fact that these countries represent the biggest share of investment volume now.

Conclusion: Tailor-made and flexible housing concepts for different stages of life are more than a short-term trend. They offer sustainable yield opportunities in a changing residential market. Demand for operator concepts, such as micro, senior and care living, is still high, whereas supply is limited. This rental market is a strong driver for the asset class and currently also offers good entry opportunities for investors. They can diversify their portfolios, conceptionally and geographically. The alternative housing sector will offer considerable potential for growth and growing investment volumes in future as well.

¹https://ec.europa.eu/commission/presscorner/detail/en/ip_23_4807

²Mieten im Micro-Living-Segment stiegen und steigen | bulwiengesa (Rents in the micro-living segment are increasing and increasing in German language)