The temporary living market has only been moving in one direction in recent years: upwards! Supply of both residential concepts, such as student accommodation, and commercial concepts, such as serviced apartments, has increased consistently. The COVID-19 pandemic has handed the market its first major test. While serviced apartments proved more resilient than the traditional hotel sector, occupancy rates still fell significantly below 50% in some markets in the second and fourth quarters. Residential concepts have also been unable to escape the current exceptional situation unscathed although occupancy rates have remained generally high and stood at an average of 90% in the middle of last year. Hence, in terms of the impact of the pandemic, temporary living concepts have ranged between the almost immune housing market and the severely affected lodging sector.
 
Depending on how the pandemic progresses, a strong recovery in demand is to be expected in all temporary living segments sooner or later. Surveys indicate that purely online tuition is not the preferred choice of the large majority of students. Since student numbers are expected to remain at a high level for the foreseeable future, demand for student housing will remain high in most university cities.

As centres of science, culture and a knowledge-intensive service economy, major cities and university cities will continue to attract people both from abroad elsewhere in Germany going forward. Temporary living concepts can and will be an easily accessible housing option for many of these people as they enter the workplace. Even if an increase in working from home draws more people out of the major cities to locations further removed from their place of work, offering them a less frequent but longer commute, this could have a positive impact on the temporary living market. For such commuters, a fully-equipped apartment with flexible booking options will be a highly attractive alternative to owning a second home. A trend towards flexible working could also produce an increase in the number of ‘digital nomads’. Temporary living models such as serviced apartments or co-living are also ideal for these target groups.

There are many factors in favour of long-term positive prospects for the temporary living market. In the short term, however, the decline in demand combined with a growing supply will result in more intense competition among providers. Going forward, commercial concepts may face further competition, with traditional hotel operators catering to the long-stay segment. In this still relatively new segment, such a move is likely to exert major commercial pressure on many operators. This situation has also produced a dampening in investment in the temporary living property market over the last year. The transaction volume in 2020 totalled approximately €750m, which was 43% lower than in the previous year. The second and third quarters in particular produced scarcely any transactions, particularly for serviced apartments.

The first major test for the segment has increased risk aversion among many investors and traditional parameters, such as location, concept and the sustainability of rental levels, will be examined more critically. Accordingly, both investors and banks are focusing even more strongly on properties in very good locations and with experienced, financially sound operators. Residential concepts are considered generally more stable. Both our investor survey, carried out jointly with Adina Apartment Hotels and Union Investment, and the transaction activity demonstrate that it would not be appropriate to speak of a withdrawal from the segment. In the fourth quarter of 2020 and the first quarter of 2021, properties in the temporary living segment changed hands for a total of approximately €670m. Serviced apartments accounted for around €105m of this. The sustained strong interest from investors and the again rising transaction volumes are a strong indication that most investors also view the long-term prospects in the segment positively.