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Leverkusen/Cologne, 09.08.2021 – Compact forms of housing have come through the coronavirus year 2020 well. Rents adjusted for quality and location rose by an average of 3.4% compared to the previous year. The increase in corresponding purchase prices was even more pronounced at 10.5 percent. This is according to the Cube Compact Living Report published by the Cologne Institute for Economic Research (IW) in collaboration with Cube Real Estate GmbH. Purchase and rental prices in urban city center locations are increasing the most. In contrast, the authors do not currently see any evidence of a reduced preference for inner-city locations in the compact living segment, as assumed by many industry observers.

As part of the study, the IW analyzed the real estate market for compact living in 71 independent cities with more than 100,000 inhabitants and the surrounding municipalities. Compact living refers to 1- and 1.5-room apartments that are new or were completed a few years ago.

Munich leads the way in purchase and rental prices

When evaluating the median purchase and rental price level between 2018 and 2020, the Compact Living Report distinguishes between “new-build apartments in all locations” and “apartments built after 2009 in central locations”. The frontrunner in both categories is Munich with median rents of EUR 31 and EUR 32.20 per square meter and median purchase prices of EUR 9,535 and EUR 12,212 per square meter. This means that the median asking price in Munich city center is around 50 percent higher than that of the second most expensive city, Frankfurt, at EUR 8,080. Munich also leads the field in terms of the purchase price/rent ratio for newer buildings with a factor of 34. Only Regensburg achieves a similarly high value with a factor of 33.

Prices rise significantly in many places, momentum tends to decline

Adjusted for quality and location, rents rose by 3.4% from 2019 to 2020, while purchase prices increased by 10.5%. Both growth rates are roughly on a par with the comparable period from 2018 to 2019.

Overall, the locations surveyed show significant differences in price trends and dynamics. Purchase prices rose in all of the locations surveyed in 2020 compared to 2019, with the rate of increase ranging from 6% to 18%. The price increases in the Ruhr cities of Wuppertal and Essen and in Bonn, Mannheim and Hanover are particularly high at between 14% and 18%. Berlin recorded a comparatively low but nevertheless significant increase of 6 percent. In 16 out of 71 locations, rental price dynamics rose by 1.5 to 6.4 percentage points compared to the previous year. In 23 locations, on the other hand, rental price growth fell significantly by -1.5 to -4.7 percentage points. In a further 32 locations, it remained relatively constant with changes of between -1.5 and +1.5 percentage points.

“The dynamism of the compact living segment in the coronavirus year 2020 surprised us,” comments Professor Dr. Michael Voigtländer, Head of the Financial and Real Estate Markets Competence Field at IW, on the results of the report. “The development of purchase and rental prices suggests a continued high preference for compact forms of living in urban locations. However, it is not yet possible to estimate with certainty how the pandemic will affect the segment in the medium and long term.”

“With the exception of Berlin, Erlangen and Ingolstadt, rents for compact apartments have risen faster than the inflation rate of 0.5% in all cities,” adds Dr. Christian Oberst, Senior Economist for Housing Policy and Real Estate Economics at IW. “Price trends in the coming months will probably be strongly influenced by the ongoing pandemic.”

Compact apartments are mainly found in urban locations

A look at the regional distribution shows that compact forms of housing are mainly offered in the “city center area” (up to 5 minutes’ drive to the city center) and in the wider “city center area” (5 to 10 minutes’ drive). 45% of the advertised purchase offers in 2020 are located in or close to the city center, compared to 52% of rental offers. A further 32% of purchase offers and 28% of rental offers are located in the wider urban area. This means that around four out of five of the compact apartments on offer are located in or near the city center.

“Compact living in good locations is also in demand during the pandemic,” says Tilman Gartmeier, founder and CEO of Cube Real Estate. “Long-term trends such as urbanization and the increasing number of single-person households are driving demand. We assume that the segment will continue to establish itself even more strongly as a separate asset class in the medium term based on rising demand.”

Compact living could become more important for senior living

Against the backdrop of the 2040 population forecast by the Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR), the authors assume that the general conditions for compact forms of housing will tend to be favorable. According to the calculations, the demographic development in the top 7 locations will result in a population growth of almost 8 percent, from 10 million inhabitants today to 10.8 million inhabitants. The age groups of the under-20s and over-70s in particular will contribute to this development. For the other 64 cities surveyed, the BBSR forecasts assume that the total population will remain at around 16.4 million inhabitants, with the population composition changing very differently in some cases depending on the city.

“The market for compact apartments will become increasingly differentiated in terms of types of use,” says Moritz Laufer from the Acquisitions, Sales and Research department at Cube Real Estate. “We are seeing a high level of interest in this form of housing from people of all ages – from students to project workers and senior citizens. The latter in particular are likely to be much more active and mobile in the future than they are today. We therefore assume that senior citizens will become an important target group.”

You can find the study here