Micro-apartments, also called micro-flats, are one-room separate living spaces. Usually, they contain an area to sit, sleep and study, a small bathroom and kitchenette with a size of up to 28 square metres. In some properties residents also have access to shared bathroom and kitchen facilities, on rare occasions even patio and roof garden.
This type of investments seems nowadays to be everybody’s darling.
Even the German government wants to lower the pressure on the housing market in urban centres and invests 120 Mio Euro to speed up innovations around micro apartments. (see press article here)
Purchase prices and rental prices correlate to a certain extent (while rents increase, sales prices increase and vice versa).
If rental prices increase a certain number of people decides to rent smaller flats instead of moving to lower priced areas (often further out). These lower prices have to be paid with:
- time to commute and
- the cost of the commute.
Especially older people tend to stay in the city, as they don’t want to depend on public transport or car.
Students don’t even want to think about rural areas or the suburbs.
On top there is a growing number of singles in most of the western world.
In Berlin every second marriage gets divorced. More than 50% of all Berliners are singles, with a growing tendency.
In all cities of the world while prices increase sizes of flats shrink.
The benefits of small flats are easy to understand:
- Small total rental amount, while the sqm-rental price is a good parameter to compare offers, what counts is if the overall sum is within the budget of possible tenants.
- Small side costs, because typically the unmeasured side costs are calculated by the size of the flat.
- Depending on the contract and the type of renter the turnover of a renter is, in general, much higher than with bigger apartments, this is better for the investor, as rent increase is limited with a permanent tenant. If there is a change in the tenant the rent could be adapted to market rents more easily.*
- Because of the size and the overall total rent and side costs, there is always a market because it will be one of the lowest offers on the market (due to small size). Certainly this is only true if the supply of small apartments stays under the demand in this area.
- Small total investment size, therefore it might be better to buy two micro apartments instead of one bigger, as obviously the risk is spread on two units/renters.
As an investment small flats up to 45 sqm and micro solutions up to 28 sqm in urban locations or close to an important technology, university or student hub is an excellent decision from an investment point of view.
*adaption to market rents might be subject to legal limitations