Interview Florian Unbehaun: “Micro apartments need much more active asset management.”

1. Commerz Real has recently increased its focus on the micro-apartment market. These include, for example, student apartments, business apartments and forms of assisted living. What were the main reasons for this investment?

We have been working in this area for our institutional investors since 2016. At this point, we have been heavily guided by identifying the need and the exact requirements. Especially in the student sector, we have identified considerable, previously unmet demand potential. This offers highly attractive investment opportunities for professional investors.

2. If we compare micro apartments with classic living: What are their strengths and weaknesses?

For the first time, micro-apartments open up more significant return opportunities across Europe compared to traditional forms of housing. This is because there is strong demand for limited short-term housing in economic and educational centres. This is particularly noticeable in the central, urban locations. Many people are willing to forego larger apartments outside the city or houses in the green to benefit from a diverse living environment and proximity to jobs or universities in urban areas. The urban environment is therefore increasingly becoming the preferred terrain.

Micro-living is also supported by the trend towards smaller households. Similarly, more and more workers expect flexibility in the workplace, which is further stimulating the demand for second homes.

However, micro-apartments need much more active asset management than traditional housing in order to function as an investment. It needs investment and attention to counteract frequent tenant changes and remain attractive. Above all, the furnishings of the apartments must be modern and offer a pleasant environment. In addition, many tenants also choose their offer based on community activities offered by an operator.

3. What are the reasons for choosing a location?

High demand for housing in urban areas must be ensured as a priority. University cities and economic centres are particularly suitable for this. The exact location is also crucial - ideally in the city district and close to universities. Good connections to local public transport are essential, as is a social infrastructure with various shopping and leisure activities. It is crucial that facilities to meet daily needs are in the immediate vicinity, as most tenants do not have their own car. It may seem trivial, but the exact location must always meet the tenants’ needs.

4. What would the “optimal” micro-apartment property look like for you as an investor - in terms of contract terms, operator choice, concept and structural properties?

In general, many investors rely on reliable operators with long-term lease agreements, which has also been proven in practice. Alternatively, we often purchase micro-apartments without operators and instead implement our own concept via a management contract with one of our partners. There is no fixed term or lease agreed; instead, the investor is fully involved in the rental success. It is important to recognise that there is absolute certainty neither there nor with lease models, but you can still participate with higher rental income. We have already successfully implemented this concept with several of our partners.

High energy and sustainability standards must definitely be taken into account from an investor’s perspective so that the apartments can also be sold in the future. In addition, excellent communication and data connections are to be prioritised. On the other hand, comfort and community must be created in terms of construction, for example by flexible solutions for apartment sizes and interesting communal areas.

5. How relevant is ESG to your investment strategy?

The ESG theme plays a significant role in our investment strategy - our two funds operating in this area meet the EU transparency criteria set out in Article 8 of the EU Disclosure Regulation. We also invest exclusively in modern new buildings that are highly energy efficient and in line with the EU Taxonomy criteria. These selection criteria are also crucial for other types of use of real estate in order to ensure the future marketability of the properties.

6. How do you ensure that your apartment blocks remain attractive to potential tenants?

In view of the often young target group in particular, it is important that the properties are continuously maintained and updated as required. This concerns not only the structural characteristics, but also the concept existing on site, as already mentioned, in particular with regard to the community offerings and communal spaces. Of course, it is equally important that the living comfort in the individual units remains high, while at the same time the rental costs remain affordable. The affordability of housing is also an increasingly important aspect in the context of micro-apartments.

7. What important lessons have you learned from the COVID-19 pandemic?


The decisive factors are definitely flexibility, location and quality. During the closure of universities, for example, we addressed alternative target groups, including business people. Overall, the micro-residential segment has proven to be extremely resilient, with a rapid recovery in occupancy rates and continued interest - provided the location and quality were right. As a result, the segment has proven to be flexible and robust in times of crisis.

8. Do you consider the micro apartments asset class as a long-term sustainable investment opportunity?

Yeah, absolutely. Society is becoming increasingly mobile and flexible, which means that short-term housing options are becoming more important. In addition, the increasing demand surplus in many cities is leading to a further increase in profitability in this segment.

9. How does the current financing and real estate market environment influence your decisions regarding investments in micro apartments and how do you assess the future opportunities for rental growth?

The segment naturally feels the generally challenging situation on the financing and real estate markets, similar to other types of use. Nevertheless, this also offers opportunities as user demand is high and continues to increase. The decline in the construction of new residential properties could prove to be an impetus in the future, which will also increase rents for micro-apartments.

10. Do you have any micro-apartment projects in the pipeline or plan to expand your investments there?

Our current portfolio includes eleven micro-apartment properties with a total value of over EUR 600 million. We strive to selectively expand this commitment.

We often participate in projects at an early stage and invest directly in construction projects. An example of this is a project on the campus mile in Frankfurt am Main, which is expected to be completed in 2024. In cooperation with the operator i Live, we are implementing one of the largest micro-apartment properties in Germany with over 1,100 residential units. However, in view of the current financing environment, we focus on properties that generate cash flow at an early stage during the purchase review.