Most of Europe's extended-stay markets are at an early stage of development and have not yet reached maturity, according to a new study conducted by bulwiengesa and Union Investment.
The Micro-Living in Europe report classifies the various temporary living segments aimed at students and professionals across the continent, analysing supply and demand dynamics in each market.
According to the research, the concept of temporary living is not well defined across different territories, creating a clear division between established markets with sustainable return prospects and emerging markets that currently offer only limited investment opportunities.
Henrik von Bothmer, investment manager at Union Investment Real Estate, explained: ‘In these established micro-living markets, despite the already high level of activity among private investors, as measured by the volume of planned apartment blocks, private supply remains low.
‘In Germany, there is significant potential in the mid-price segment in particular, where not enough stock is being built,’ he added.
The analysis identified Germany, France, the UK and the Netherlands as flagship markets for micro-living investment. These four top countries in the ranking of the most attractive European markets for investors are notable for having capital cities and metropolitan areas in which students and young professionals often struggle to find accommodation.
According to the report, the markets for student accomodations and corporate apartments are more developed than the respective markets for serviced apartments in terms of transparency and transaction volumes.
Prospects bright in Austria, Spain and Ireland
Other markets such as Austria, Spain and Ireland are notable for their accelerating transaction volumes in the student and corporate apartments segment.
Indeed, transaction volumes in this segment has increased compared to previous years.
At €307 mln, Austria recorded 230% greater volume in 2017 than in 2016. After the UK and Germany, Spain saw the third largest transaction volume in the past year, at approximately €784 mln. Spain and Poland are currently delivering the highest net initial returns compared to the rest of Europe, the study revealed.
Serviced apartments remain a niche product
Serviced apartments, meanwhile, remain essentially a niche product and still have comparatively poor transaction transparency.
‘The quality of the offering and the creation of new products and brands will boost the professionalism of the market,' said Von Bothmer.
‘Everywhere you look, serviced apartments are becoming an established feature of the investment market, although the pace of progress differs.’
Hotels are seen as less flexible for long stays
For extended but limited periods, young professionals, project workers and commuters welcome an alternative to hotel rooms, since hotels are seen as less appealing and less flexible for long stays, the report said.
‘Potential demand from these target groups is high in many European cities,’ said Georg-Christian Rueb, senior portfolio manager at Union Investment.
‘Strong demand-side support and increasing professionalism on the provider side are good reasons for investors to devote more attention to this relatively young segment in the short to medium-term,’ he concluded.