Why are serviced apartments becoming popular in the real estate market in Germany?

How is the serviced apartment market growing in Germany?
Why are serviced apartments becoming increasingly attractive to investors?

Introduction to the serviced apartment market in Germany

There is a noticeable increase in interest in serviced apartments in the German real estate market, which represent a unique combination of an apartment and a hotel room. These apartments come fully furnished and equipped with kitchens, offering a variety of additional services, including 24-hour reception and regular cleaning with linen changes. Typically, this type of accommodation is used for temporary stays ranging from one to three months.

Management and profitability

Management of serviced apartments is typically carried out by professional operators who lease the apartments from the owners. In turn, the owners receive income in the range of3.5% - 4.0%Annual. According to current legislation, serviced apartments fall under the category of commercial real estate. This means that owners cannot use this property for their own residence; however, they are free to rent it out on a short-term or medium-term basis. In major cities in Germany, short-term rental of residential apartments is usually prohibited, which further increases the appeal of serviced apartments.

Demand trends

Current trends show that interest in this type of real estate continues to grow. Serviced apartments are in demand among various categories of tourists; however, they have become most popular among business travelers. Staying in such apartments is significantly more economical than in hotels. For example, in Berlin, the average cost for serviced apartments ranges from44 to 79 eurosin a day, while for similar comfort level rooms in hotels you will have to pay from118 to 130 eurosovernight.

Advantages of serviced apartments

Lack of large deposits:A significant deposit is not required for renting serviced apartments, which is especially appealing to groups of travelers and families.
Savings on food:The ability to cook for oneself allows for significant savings on expenses.
Comfortable atmosphere:creating a cozy atmosphere that feels like "a home away from home."

Research and forecasts

According to the company's reportGSairfor the years 2020-2021,43%Operators around the world have observed an increase in guest stay duration and a rise in rental income, indicating a growing interest in serviced apartments.

Investment attractiveness

For investors interested in serviced apartments, their prices are comparable to those of regular apartments. For example, in Berlin, you can buy an apartment with an area of 50 square meters starting from300 thousand eurosThe investor is offered the choice between purchasing an individual property or an entire building.

Lease agreements

Lease agreements signed with operators most often range from15 to 20 yearswith the possibility of extension. In most cases, such contracts provide owners with a stable income, but there may also be agreements involving revenue sharing or combined schemes. Most often, the lease is arranged based on the principle ofdouble net leaseThis involves a situation where the operator covers most of the expenses. This includes property taxes and insurance payments. The owner only needs to pay for the maintenance of the main structures, the roof, and essential utilities such as water supply and heating.

Increasing the appeal of serviced apartments

In recent years, there has been a noticeable increase in the attractiveness of serviced apartments, which offer a more favorable return on investment compared to regular apartments, reaching around 3.5-4% per year. This is due to the fact that the management company has the opportunity to rent out part of the premises on a short-term basis, which typically generates higher income compared to mid-term rentals.

Additional services and their impact on cost

In addition, the cost of living in serviced apartments is on average 70% higher than the price range of standard apartments, which is possible due to the provision of additional services such as reception and other amenities. Investors also benefit from the rising prices in the real estate market. For example, over the past ten years, the price per square meter in new buildings in Berlin has increased by approximately 149%, with a growth of 22% in 2020 alone. After the lease term ends, these apartments can be easily returned to the residential market, making them particularly attractive to investors.

Resilience in the context of a pandemic

Serviced apartments have demonstrated their ability to adapt during the pandemic: unlike the hotel sector, they experienced smaller losses. According to the 2021 Hospitality Insights report, these properties have a breakeven occupancy threshold of just 20%, which attracts the attention of both investors and developers.

Personnel and management costs

Personnel costs in this segment range from 12% to 15% of the total budget, which allows for better management during periods of declining demand. In contrast, in the hotel industry, this figure reaches 30%.

New clients and forecasts for the future

Against the backdrop of global lockdowns, serviced apartments have attracted new clients among corporate users who were forced to adhere to strict quarantine measures or self-isolate. Forecasts from Hospitality Insights indicate that by 2025, over 20,000 new units of such apartments are planned to open in Europe. At the same time:

29% of them will be located in the United Kingdom;
22% — in Germany.

More than 70% of surveyed investors expressed increased interest in new projects in this area in the main markets.

Current yield of serviced apartments

Currently, serviced apartments in Berlin offer a yield of 4% per year, which is significantly higher than the average market rates. This is due to the fact that these properties are located in developing areas where real estate prices have not yet reached high levels, but rental demand is rapidly increasing due to heightened interest.

A full range of services for investors

We have a complete set of services for investment project analysis, we assist in organizing bank financing, and we collaborate with legal and tax specialists, forming the legal structure and managing serviced apartments. In 2021, we successfully completed a deal for the construction of a complex consisting of three serviced apartment buildings in the Köpenick area of Berlin, which highlights our active involvement in the development of this market segment.

Conclusions about serviced apartments in Germany

Taking all the above facts into account, I have come to the conclusion that serviced apartments in Germany are indeed becoming a popular and reliable option for both tourists and investors. Their offerings not only meet modern demands for comfortable and economical housing but also cater to the needs of business travelers who are looking for more advantageous alternatives to traditional hotels.

Advantages for investors

In the context of growing demand for quality and affordable temporary housing services, the availability of serviced apartments offers property owners a unique opportunity to generate stable income. Attractive rental conditions indicate the potential for achieving returns at the level of3.5–4.0%Annual returns make such assets a valuable option for long-term investments.

Resilience to crisis phenomena

The COVID-19 pandemic also demonstrated the resilience of this model, as serviced apartments experienced a lower decline in demand compared to the hotel sector. Investors, recognizing this, are eager to carve out their niche in the market, which in turn leads to the creation of new projects and the expansion of infrastructure. This is a subject of my genuine interest, and I propose to delve deeper into this area by studying assets that are not only profitable from an investment perspective but also meet the modern society's demands for comfort and safety.

Market prospects

This trend believes in a bright future for the serviced apartment segment, considering that significant market supply growth is expected in the coming years. A flexible management policy and adaptability to changing client demands also put investors in a more advantageous position. Given all of the above, I recommend that anyone looking for investment opportunities pay attention to this segment and consider options that can provide stable income and potential asset value growth in the long term.