BERLIN (Reuters) - Two German property firms on Wednesday said they plan to invest 1 billion euros ($1.14 billion) to develop tiny apartments with communal facilities across Europe in the next three to five years, with a big U.S. expansion by the co-living operator expected in 2019.
Real estate investment manager Corestate Capital Holding SA (CCAG.DE) and co-living provider Medici Living said they aim to build a European portfolio of around 35 assets and add 6,000 rooms to Medici Living’s current portfolio of 1,800 rooms.
Medici Living also plans to match the European funding to expand its U.S. operations and is targeting Boston, Denver, Washington, Philadelphia, San Francisco, Los Angeles and Austin, Texas, a spokeswoman for the company said.
The Berlin-based firm currently operates two sites in New York and one in Chicago under the Quarters name.
Young professionals priced out of housing markets in major cities are driving demand in the co-living sector where “microflats” are grouped around shared facilities such as dining areas, lounges, work spaces, laundry rooms and gyms.
The two German companies, which would invest the funds in the form of equity and debt, said they would focus on European cities with more than 500,000 residents and would develop existing properties and newly constructed blocks.
Each investment would be in the range of 20 million to 60 million euros.
“Urbanisation, young people’s desire for community, as well as the opportunity to live and work in different cities, are boosting demand for communal residential space,” said Corestate Chief Executive Michael Buetter.
Medici Living founder and Chief Executive Gunther Schmidt said he believed co-living had greater potential than the booming co-working sector.
“This investment is the breakthrough for co-living in Europe,” he said. “We want to become the WeWork of co-living,” he said, referring to the U.S. shared office space provider which has secured investment from Japan’s Softbank (9984.T).
Microflats typically range from 200 square feet (about 20 square meters) to 350 square feet for a studio apartment and are being built across the world, from Hong Kong to New York as young people flock to cities.
Corestate and Medici Living said they would focus investment on Austria, Switzerland, Spain and Poland, in addition to Medici Living’s current European target markets of Germany, Britain and the Netherlands.
As part of the collaboration, Corestate will be responsible for investment, project development, financing, and asset and fund management. Medici Living will design and operate the properties.
($1 = 0.8790 euros)
Reporting by Caroline Copley; Additional reporting by Esha Vaish in Stockholm and Herbert Lash in New York; Editing by Edmund Blair and David Gregorio