BERLIN (Reuters) - German property firms Corestate Capital Holding (DE:CCAG) and Medici Living plan to invest 1 billion euros ($1.14 billion) in developing tiny apartments with communal facilities in the next three to five years, the two firms said on Wednesday.
Young professionals priced out of housing markets in major cities are driving demand in the so-called 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.
Corestate, a real estate investment manager, and Medici Living, a Berlin-based provider of co-living services, aim to build a portfolio of around 35 assets and add 6,000 rooms to Medici Living's current portfolio of 1,800 rooms.
"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 (T:9984).
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.