Furnished apartments in Berlin: 3 Key Investment Trends

Germany has a long tradition of renting. 55% of people rent their primary residence, the 2nd highest figure across all OECD countries (only Switzerland has more renters!). (src) In the past, most Berliners rented their apartments for decades and managed all upkeep themselves. Nowadays, there is an ever-growing demand for furnished apartments for short term rent. 

Let’s take a look at some reasons for this seismic shift, and explore the key trends investors should note to succeed in this rapidly expanding market:

The Sharing Economy

To begin with an often overlooked societal trend — the move away from traditional ownership, and new emphasis on sharing or borrowing assets. Young Millenials and Gen Z prioritise having access to services when they want them, rather than owning a home or car: a trend called “uberisation.” (source) This generation expects to relocate often and find it impractical to buy a home or furniture. Some are voluntarily minimalist and “asset-light”, moving on quickly and only owning items they truly need.

What does this mean for the market? While minimalists may seem challenging to market to, investors are reading these signals and embracing change. Instead of lamenting millennials’ resistance to buy, investors should back new business models which capitalise on the desire to share and rent. Shared bicycles, communal gardens and sports facilities are all features young renters are willing to pay more for.

Coliving, a residential community model which offers furnished micro-apartments alongside larger communal shared spaces, is a solid trend. Global funding in the coliving space has increased by more than 210% annually since 2015 (source), with providers such as Habyt, Quarters and GoLiving attracting large numbers in Berlin. From an investment perspective, coliving spaces add more value to small spaces. Individual coliving apartments in Berlin have a median size of 21 sq m and cost 618 euros per month (inclusive of all costs). This equates to approximately 29€ per sq m, considerably more expensive than traditional renting. However, the tenant is willing to pay a premium for the valuable shared facilities. Around 4% to 10% of total space is dedicated to communal areas, (source) and the opportunity to socialise with other newcomers further increases the appeal.

src

International tenants

Frequent location changes and international moves have created an entirely new demographic of tenants. Berlin’s population is growing by around 60,000 people per year, and if current trends continue, it is estimated that around 250,000 people will move to Berlin in 2030. (source) Around one-quarter of the city’s population are expats, internationals who relocate to Germany from other countries, with the German government estimating 1.2 million more people would be needed to fill the “skills gap” in key professions, it seems only logical that the number of newcomers will increase in coming years. (src) As well as all that, Berlin frequently tops the list of best destinations for digital nomads — people who work remotely and relocate to different countries to experience new cultures. With remote work likely to stick around, it seems the already high demand for first-time flats is set to soar.

What does this mean for investors? Well, with the housing stock in Berlin already under pressure, it is wise to invest in the kind of housing these incoming expats are looking for. With no payslips, SCHUFA and often no German skills or local connections, apartment hunting is a very daunting experience for expats. This is why many internationals prefer to reserve furnished apartments online before even arriving in Berlin, and “settle in’’ comfortably while they search for a more long-term apartment.

This is a significant change from the physical apartment visits and negotiations of the past. However, changing norms create a host of opportunities for Proptech startups and investors. From Fypp, metasearch engines which help apartment hunters find a place before even arriving in Berlin, to VR software and digital contract services, digitalisation is the key trend. Managing large numbers of properties effectively and often remotely is another area of opportunity. We can expect to see an increase in automation, smart home and CAFM in the furnished apartment space.

Smaller units, shorter lets

While older generations always sought to “trade up” and gain more space for longer periods of time, it seems today’s tenants are leaning toward smaller, temporary units. Right now, the average millennial moves jobs every 2 years. There is little incentive to put down roots and accumulate assets. (source) This is likely related to demographics, and a higher number of single, highly mobile people — the average age at first marriage is now 33 years, and 72% of Germans aged 25–30 are single src. Delaying or opting out of marriage and raising a family means less demand for traditional, spacious family units and more demand for smaller, short term living arrangements.

What does this mean for the market? It will not come as a surprise that the number of one-person households in Germany will rise to 44% by 2035 — totalling almost 19 million households. Investors are poised to meet the needs of this steady market. The number of one-room apartments rose by 11% between 2010 and 2018, 2.5 times the growth of the overall apartment stock. (src) Investors are preferring to hedge their bets on larger numbers of smaller units, rather than just a few luxurious ones.

Units with less than 25 m² are the most frequently requested in serviced apartment blocks, (source) and the federal government even agreed to invest €120 million in micro-apartment expansion in 2017 (src). This is a wise investment — micro apartments can sell for as little at €100,000, and a special mortgage rate of 1% can apply to buildings constructed with the use of the latest energy-efficient technologies. Financial institutions are even offering lower interest rates for micro-apartments as they are relatively liquid, with a high turnover and ever growing demand.

Micro Apartment in Schoneberg — source Paola Bagna (creative commons license)

An Opportunity & A Challenge

Without a doubt, this is an exciting if turbulent time to expand any coliving, student accommodation or other temporary rental property. Growth seems guaranteed, but preparing for new ventures requires a great deal of planning, and, sadly, a lot of operational headaches!

Managing furniture and other assets in an expanding building may seem like a daunting task for even the most experienced operations manager. Sourcing, buying, delivering, and installing furniture is one feat, but maintaining it and managing repairs is another.

Reco could be the solution. This furniture leasing company rents furniture by the month to business clients in the Berlin area. Just select the style of your choice (Bohemian, Industrial or Scandinavian) and they supply everything you need to fully furnish an apartment, all at an affordable price, freeing up your capital for other ventures. The company operates a circular business model and emphasises repair or replacement, while offering you the option to try a new style at the end of your contract if you wish. If you don’t want to say goodbye to the furniture, there’s also the option to buy it — huge flexibility at a small price.

When it comes to managing your inventory, Retrac offers a stress-free solution. Designed by industry experts, this software helps you manage all your inventory in one app. Simply stick the QR codes to your assets, scan, and see the asset’s location, repair history, supplier info, and other information. Employees can easily run inspections of full buildings, and log incidents for maintenance. Receive quality updates when items are in need of repair — saving you money on emergency repairs. Most impressive is the BI dashboard, which keeps track of all costs, stats and tickets — and even provides you with insights on how you could optimise operations in the future.

For more updates on these exciting startups, follow Reco and Retrac on LinkedIn.