Micro-Living holds firm as investors brace for 2026 test

Micro living enters 2026 as one of the few German residential segments still showing real resilience in a market weighed down by high costs, thin development pipelines and political unpredictability. Occupancy remains exceptionally tight at 95% . Average all-in rents have risen to 605 euros per month, a 3.6% annual increase, with privately owned stock averaging 702 euros and post-2014 new-builds reaching 664 euros. Forecasts anticipate rent growth of between 2% and 6% annually through 2028.

The data come from the Micro Living Initiative, a platform founded in 2020 that brings together fourteen major owners and operators including Commerz Real, Greystar, Union Investment, HanseMerkur Grundvermögen, i Live, City Pop, talyo., REOS and berlinovo. Its semi-annual report covers 128 buildings with more than 28,000 units, heavily concentrated in the A-cities. For institutional investors, it has become the closest thing to a benchmark dataset. It confirms sustained demand and a tenant base now broader than the student cohort that once defined the format. Students account for 36% of occupants, while single households, commuters, expats and young professionals make up the majority.

Cost pressures, however, are becoming harder to ignore. Operating costs have risen another 7.5% to 7.76 euros per square metre, the highest level since 2020. Around 90% of operators plan to pass these increases on to tenants, which will push both net and all-in rents higher. Buildings offering gyms, lounges and co-working areas have seen their service component rise sharply, pressuring margins at a time when the premium end of the market is becoming harder to let. Three quarters of operators rate leasing premium micro units as challenging, particularly where international student demand requires more checks and longer turnaround times.

The rental spectrum underscores the widening gap. Subsidised units still exist at roughly 300 euros per month, while premium A-city micro units now reach almost 1,500 euros. The premium between all-inclusive micro living and conventional rents sits at about 10 euros per square metre, which helps explain why the format remains cashflow-positive despite rising OPEX. Berlin illustrates the trend: furnished micro-living rents there have increased by an average of 5.7% per year since 2016 and now start at roughly 949 euros per month.

A stable market meets rising costs and political risk

Capital is still present. The sector’s transaction history shows strong growth since 2012, peaking at 1.7 billion euros in 2021 and surpassing a 5 percent market share by 2023. The latest Initiative report, however, provides no transaction data for 2024 or 2025, leaving open the question of how recent volatility has affected dealmaking. Selective appetite is still visible. Principal Asset Management’s new mandate with Reos is one example. From January 2026, Reos subsidiary Placed will operate two micro-living buildings in Berlin and Frankfurt with more than 460 units aimed at expats, young professionals and university-linked tenants. For Principal, the partnership supports long-term competitiveness. For Reos, it strengthens its position as a specialist operator with more than 110,000 square metres now managed in micro living and PBSA.

Regulation remains the most immediate wildcard. The federal government’s proposal to regulate furnished apartment rentals is viewed negatively by 80% of industry experts. Specifics are unclear, but operators fear restrictions on rental durations, pricing and administrative processes. Any of these would weaken the all-in rent model that defines the product. Investors have begun to incorporate such risks into underwriting, and valuers now factor regulatory uncertainty into mainstream assessments rather than treating it as an outlier.

The demographic profile poses a second structural issue. Micro living is designed primarily for tenants under fifty who value spatial flexibility. SWK Immobilen’s Susanne Gentz notes that this is a viable investment target group, but one that excludes the country’s growing older population. She argues that the format is more sustainably investable when projects incorporate a third-use plan from the outset, including the potential to convert to senior living or assisted accommodation. Without such flexibility, long-term obsolescence risk increases.

Geography forms the third constraint. The model is largely limited to A-city districts with steady inflows of students, expats and entry-level professionals. This concentration restricts diversification and heightens exposure to localised shocks. It also means micro living can only address a small part of Germany’s structural housing shortage. Even the fastest-growing cities need a wider mix of units and more land release. Hamburg’s alliance for housing remains the clearest example of what coordinated planning can achieve, from quicker permits to stabilised vacancy rates. Micro living contributes, but only alongside broader supply strategies.

Implications for real estate investors

For institutional capital, micro living remains one of the most defensible urban residential strategies for 2026. High occupancy, rental momentum and the ability to pass through rising operating costs provide an attractive risk profile at a time when other residential segments face weaker absorption or greater political scrutiny. The segment has matured into an established part of the residential landscape and continues to attract investors looking for predictable urban income.

The risks are well-defined. Regulatory uncertainty is rising, and the demographic focus is narrow. The geographic footprint remains limited. The next phase will depend on whether operators can manage these pressures while sustaining the occupancy and rent performance that originally drew capital into the segment. The strongest positioning remains in A-city locations near universities, commuter corridors and districts attracting steady inflows of young workers and international tenants.

Germany’s wider residential market still contends with supply shortages, slow permitting and affordability pressures. Within this context, micro living remains a reliable, if operationally intensive, income product for investors seeking exposure to constrained urban demand. Its appeal in 2026 rests on what the rest of the market cannot currently offer: consistent occupancy and the flexibility to adjust rents in line with rising costs, even as policymakers debate the rules of the game.