Leverkusen, 10.08.2022 – According to the Cube Compact Living Report, which was compiled by the Cologne Institute for Economic Research (IW) in collaboration with Cube Real Estate GmbH for the second time in a row, demand for compact living did not fall in 2021. Compared to the previous year, quality-adjusted rents rose by 2.5% in 2021, while quality-adjusted purchase prices increased by 12.2%. Purchase price growth was particularly strong in Leipzig, Chemnitz and Wuppertal, while growth in Regensburg, Frankfurt and Ingolstadt was significantly weaker. Rental growth was also strong in Leipzig and Wuppertal as well as in Mönchengladbach, Bielefeld and Berlin. Rental demand in the major cities remains at a high level, but the peripheral locations of the major cities and the surrounding areas are becoming increasingly attractive.

The study defines compact living as apartments with a maximum of 1.5 rooms (in addition to a kitchen and bathroom). The German Economic Institute used all purchase and rental offers for 1- and 1.5-room apartments in the 71 independent cities with more than 100,000 inhabitants as the basis for the report. Both offers in the city area and in the surrounding area that were available between 01.01.2018 and 31.12.2021 were analyzed at the respective locations. In total, around 162,000 to 200,000 advertisements per year were analyzed in the 71 locations examined in the three years under review.

In addition to an analysis of developments on the real estate market, a special evaluation of the Socio-Economic Panel (SOEP) and the regional statistics of the Federal Statistical Office on the compact living segment in Germany was also carried out for the report in order to examine the socio-economic characteristics of compact living users.

Year 2021: Larger rental offer thanks to lockdown and home office

At the beginning of 2021 in particular, the number of rental offers in the centers of the top 7 cities rose sharply and was still over 40% higher than the previous year’s figure towards the end of the year. The main reasons for this are likely to have been the lockdowns and the obligation to work from home. Long-distance commuters and students are key demanders in this segment, but virtual formats meant that a second home at the university location or close to the workplace was not necessary. As a result, supply has risen significantly in the last year in particular – and rents (taking general inflation into account) have also developed more moderately.

The proportion of one-bedroom apartments is highest in southern Germany

Compact forms of housing are particularly relevant for the rental housing market. Around 7% of tenant households lived in a one-room apartment in 2019 (second homes were not included in the report). Among tenant households, apartments with three rooms (38%) and two-room apartments (31%) continue to be the most popular. The relevance of one-room apartments for the housing market differs significantly from region to region: they are more common in large cities and urban areas than in rural areas. The proportion of one-room apartments is particularly high in medium-sized cities in southern Germany – this is presumably due to the generally higher price levels in southern Germany, also in relation to income. In 12 cities, the proportion of compact living is in the double-digit percentage range.

Munich is the front runner

Munich plays a special role: at almost EUR 22 per^m2, rents are by far the highest there. It is followed by Stuttgart and Frankfurt, other top 7 cities, as well as Freiburg. Other metropolitan areas such as Berlin, Düsseldorf and Hamburg tend to be in the middle of the rental price range. By contrast, compact apartments in eastern German cities such as Chemnitz, Magdeburg and Cottbus are particularly affordable, while rents also remain very low in some cities in the Ruhr region.

Munich is not only the leader in rental prices, but also the city with the highest number of one-room apartments. Between 2011 and 2020, the Bavarian capital increased the supply of one-room apartments by 9 percent. Although this growth was below the average for all districts, the size of the market means that this is still a considerable increase, corresponding to around 8,100 apartments. With around 94,000 one-room apartments, Berlin has just under 6,000 fewer one-room apartments than Munich, but the momentum in the German capital is significantly higher: since 2011, the stock of one-room apartments there has increased by 21,000 units, which corresponds to an increase of 29%. Overall, the momentum in the one-room segment in recent years is remarkable and underlines the increasing relevance of the sector for the German housing market.

“By choosing smaller apartments, the housing cost burden can be reduced. In this respect, it is not surprising that the proportion of small apartments in Munich and Stuttgart is very high. In the long term, however, this also means that demand for compact living will increase in cities such as Hamburg, Berlin and Cologne as housing costs continue to rise,” explains Tilman Gartmeier, founder and CEO of Cube Real Estate.

Rent increases in Wuppertal, Leipzig and Mönchengladbach

Rents rose particularly sharply last year in places where rents tended to be low. The increases in Wuppertal, Leipzig, Mönchengladbach and Potsdam were strikingly high at around 4.5 percent each. Leipzig and Wuppertal, on the other hand, recorded strong growth in both rents and purchase prices, meaning that these markets are in a boom phase. Overall, price and rental growth is stronger on average in the somewhat cheaper locations than in the higher-priced locations, which indicates increasing convergence.

Compact living is very popular for new builds

A look at new construction dynamics in particular shows that compact living is experiencing a boom: between 2011 and 2020, construction activity in the one-room segment was higher in 344 out of 401 German districts than in apartments with more rooms. On average across the 401 German districts and independent cities, the number of one-room apartments grew by 13%, while the number of apartments with two or more rooms increased by 5% in the same period. In total, there are only 19 districts in which the number of one-room apartments shrank between 2011 and 2020. The explanation for this observation is simple – the number of single households has been growing steadily for years.

A household income of less than 2,000 euros

According to the SOEP, around 2.2 million people in Germany live in a one-room apartment. The residents of one-bedroom apartments differ significantly from the rest of the population in terms of socio-economic indicators.

The household income of residents in the compact living segment is lower than the national average. Almost three quarters of residents have a household income of less than EUR 2,000, while the ratio is reversed in the population as a whole. Of the residents in the CL segment, 36% work full-time, while in the population as a whole the proportion is slightly lower at one third. Just under a fifth of residents in the CL segment are already retired, a slightly lower proportion than in the population as a whole. The lower incomes of residents in this segment are also due to the fact that single-person households generally have significantly lower household incomes than multi-person households and are younger than the national average.

37 years old, single, 34 square meter apartment

Compact apartments are mainly occupied by young singles. On average, residents are 37 years old, almost 10 years younger than the average age of the population as a whole. More than two thirds of people living in compact housing are between 25 and under 40 years old. People who live in a one-room apartment almost always (86%) live alone, making the single rate four times higher than in the population as a whole, where 21% of people live alone.

On average, the apartments occupied by people in the compact living segment are 34 square meters in size. By comparison, 50 percent of the population as a whole live in apartments with more than 50 square meters of living space. More than half of the residents in the CL segment live in an apartment with a size of 30 to less than 45 square meters, a quarter in an apartment with 15 to less than 30 square meters. Only around 4 percent have less than 15 square meters available in one-room apartments. In the population as a whole, only just over a quarter of people live in an apartment smaller than 75 square meters.

Medium-sized and small towns have potential

A third of residents in the segment live in a municipality with more than 500,000 inhabitants. Compact living is significantly less prevalent in smaller municipalities with fewer than 20,000 inhabitants. A fifth of all people who live in a one-room apartment still live in a small municipality. In fact, almost half (45%) of CL residents live in a medium-sized or small town.

“Compact living is predominantly an urban form of living, as it is hardly surprising that users of small apartments often live in large cities. Compact living can therefore be an answer to high prices per square meter in central locations. However, the potential of peripheral and suburban areas should not be underestimated. As rents will also rise there in the future, we expect to see increased demand for small, affordable living space in the coming years,” says Moritz Laufer, Team Leader Research / Acquisitions & Sales.

Forecast for 2022:

Demand for compact living is likely to increase in 2022 for two reasons. Real wage losses mean that households will have to be more economical, so in case of doubt they will either demand apartments that are further away from the city center or that are smaller. Secondly, compact living apartments are generally new builds and therefore have low energy consumption. In view of the sharp rise in energy prices, energy efficiency is becoming much more important, which will increase demand for these apartments. In addition, energy consumption is strongly dependent on the number of square meters, which also speaks in favour of Compact Living.

“We assume that rent increases for compact living will be above the overall average in 2022, which will naturally also stabilize prices. Despite short-term turbulence in the market due to the pandemic and the economic consequences of the war in Ukraine, it should not be overlooked that the number of single households is rising steadily. The outlook for the compact living market beyond 2022 is therefore good,” says Prof. Dr. Michael Voigtländer, Head of the Financial and Real Estate Markets competence area at the Cologne Institute for Economic Research.