Residential developers and investors looking at the European extended-stay market should be buoyed by good prospects for growth, according to bulwiengesa and Union Investment.
A market study into the sector by the two companies has identified Germany, France, the United Kingdom and the Netherlands as flagship markets for micro-living investment. The four countries are notable for having capital cities and metropolitan areas in which students and young professionals often struggle to find accommodation.
“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,” says Henrik von Bothmer, investment manager at Union Investment Real Estate.
“In Germany, there is significant potential in the mid-price segment in particular, where not enough stock is being built,” he added.
In its analysis of student/corporate apartments and serviced apartments with hotel-like facilities, the study has also pointed to ancillary opportunities in the smaller markets found in Austria, Spain and Ireland. Among those three, Austria stands out as its returns have put it in the same league as the established European countries. The country recorded 230 percent more transaction volume in 2017 than in 2016 in the student/corporate apartments segment, at €307 million ($359 million).
“The activities of private sector providers in Austria are mostly concentrated on the capital, Vienna, but in future cities such as Salzburg and Graz are likely to benefit even more strongly from the potential demand generated by new lifestyles and ways of working,” said Felix Embacher of bulwiengesa.“We will see significantly higher transaction volumes here in the medium term.”
Compared to student/corporate apartments, however, the study suggests that the serviced apartments segment in smaller European markets is not an attractive investment. It points out that even in large and established markets, apartment blocks with services included remain a niche product and still have comparatively poor transaction transparency, driven by a fragmented base of providers.
In general, the study found that the majority of the markets across Europe are at an early stage of development, but they do have a highly diverse range of extended-stay options.
A positive sign picked up by bulwiengesa and Union Investment is the strong involvement of both existing and new international operators in the main European markets.
“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.”
