Micro-apartments are a nice way to make outsized returns

There has been much written about micro-apartments in recent years, not all of it positive. But given the surge of recent interest, should you consider this unique asset type?

We have all read articles about “rabbit hutch” housing in the world’s most expensive cities. We have all seen images of apartments where inhabitants can cook their dinner, watch television and hang the washing up while not leaving the comfort of their beds.

However, for savvy property investors, the micro-apartments that are being developed and in planning are far from the nightmarish images we are used to seeing online. These are leading the way when it comes to design and fast becoming a must-have for those who are looking to dip their toes in a new city. That’s welcome news for developers.

The units — known as micro-apartments, apodments or microflats — typically measure under 25 square metres and are self-contained living spaces which are purpose-built by developers to accommodate sitting, dining and sleeping spaces for one or two people, a bathroom, kitchenette and a balcony. They are usually located in expensive city centres such as London, Singapore, Hong Kong, San Francisco and New York, but up and coming locations where the units are being rapidly developed include Munich and Stockholm.

The surge in demand for microapartments both from owner occupiers and from investors will come as good news to developers and is due to a number of factors. The increasing population in city-centres is a key driver. Across Europe, the populations of large cities is expanding by an average of 1.5 per cent per year and in Asia there is a similar pattern emerging with the population of Singapore increasing 1.3 per cent yearon-year.

Similarly, younger demographics — and even start-up entrepreneurs who aspire to live in large cities as a lifestyle choice — find the properties attractive because they are more concerned with getting out and exploring new places than spending time indoors. The limited space in the apartments also make them the perfect choice for those who live alone or moving away from home for the first time and don’t yet have lots of possessions.

These groups appreciate the unique design of the apartments and the innovative storage solutions that can be found in just about every corner of the unit. But what returns can micro-apartments offer property investors and are they a safe bet for developers?

For investors, looking to purchase micro-apartments the main draw is the very attractive rental yields they offer. The small square-footage allows owners to rent them out at costs that, compared to the average property or a full-sized home, are relatively high per square metre. But they are affordable to tenants who might not be able to afford to live in a larger property in a central location.

Those new to the property investment market can also benefit from the relatively low initial capital investment required to acquire a micro-apartment making them a great way to get a foot on the property ladder. Further, those who chose to invest can rest assured that demand for the properties largely outstrips supply.

So when the time does come to sell, they will not be burdened with a lengthy sales process before they reap the benefits of the investment.

In Berlin, IP Global recently purchased dozens of units from a developer in Neukölln, a district which just five years ago was notorious for crime but is now experiencing widespread gentrification. With its newfound popularity has come welcome news for investors.

Neukölln has the second highest rental growth in Berlin and only behind Friedrichshain, its more developed neighbour. The popularity keeps increasing as more shops, restaurants, bars and cafés keep opening week on week. As a result, the studio apartments have high yields — up to 6.4 per cent compared to the 3-3.5 per cent average in Berlin.

Far from fearing the micro-apartment, they could be the perfect next purchase for investors who want a slice of some of the most lively and attractive capitals in the world

The writer is Director and Head of Middle East at IP Global.