At first glance, co-living might merely seem like an easier way for millennials to access lower cost housing, but it’s a lot more than that. In fact, even retirees are taking advantage of co-living spaces across the globe.
Over the past decade, the co-working trend has disrupted traditional approaches to buying and leasing office space. The rise of remote work has facilitated new ways of doing business and redefined what it means to be an employee. As a result, fresh business models and interesting new players have emerged in the arena of commercial real estate. Workspaces, however, are far from the only places facing disruption. Accommodation alternatives are rapidly emerging too.
The term “co-living” refers to residential real estate offerings with communal facilities and shared spaces that move the emphasis away from buying and renting homes. The focus is instead on individual or group access to attractive accommodation without the burden of ownership. These models aim to strike a balance between privacy and community, offering high standards of accommodation with added services to help residents achieve a better quality of life.
There has been a huge surge of interest in this area from those seeking urban housing options in the world’s most expensive cities. Co-living startup OpenDoor in San Francisco has quickly expanded to accommodate 65 residents across five properties, and it currently has a waiting list of more than 800 people. Here in London, The Collective has been making waves with its 546-room co-living venue set beside a canal in Willesden Junction.
While many of these projects are limited in scope, other operators are taking a more global approach built on a subscription model. The accommodation network Roam invites residents to sign up for a single lease that allows them to co-live in San Francisco, London, Bali, Miami and Tokyo for weeks or months at a time. Communal accommodation is far from a new idea, but rebranding it as “co-living” has resulted in an unexpected revival of the concept.
These new housing concepts address a number of issues that young urbanites face in global cities like London, San Francisco and New York. Fewer jobs now require employees to report to a single office each day as more companies adopt remote work practices. At the same time, the desire to be tied to a single home in one city for the long-term has also decreased. This is creating demand for new accommodation options and innovative services to accompany them.
In the future, paying rent to a single landlord in a single location is unlikely to be the standard arrangement. The mindset of millennials is different from previous generations and research shows that the aspiration for home-ownership has all but disappeared. As this demographic reaches their prime spending years, they present plenty of opportunities for disruptive companies and forward-thinking investors. It’s crucial to consider their priorities and to start work early on the products and services that will replace the norms set by their predecessors.
Addressing the need for affordability and quality is undoubtedly the biggest challenge for investors and startups to consider. An en-suite room at The Collective starts from a modest £250 per week including rent, council tax, utilities, room cleaning and access to communal spaces and events. Their model is high volume, low margin. A studio loft at the Zoku co-living complex in Amsterdam, however, comes in at around £1,100 per week when booked as part of a month’s stay, with similar inclusions as The Collective. With fewer rooms available, an average occupancy rate of around 90%, and a huge financial outlay spent on fitting out a building to meticulously-designed specs, their model is lower volume and higher margin, and builds out from a hotel and hospitality audience rather than a property rental audience.
At Roam, flexibility and mobility are key parts of the package. For an average cost of around £2,000 per month, residents can stay in any of the company’s locations. But there are questions over how much flexibility and mobility is necessary for consumers and viable in financial terms for operators. Co-working has already adopted a “home” model, allowing workers to be based primarily at a single location, with the flexibility to spend limited periods at other locations as needed. The same principle could certainly work in co-living, though nobody has found the winning formula yet.
More competition in the market may deliver greater affordability for consumers in the coming years, which could help address the housing crisis and assist cities in reducing the brain drain of young talent relocating to cheaper destinations. For this potential to be realised and more people to adopt co-living, reducing the price point will be a key battleground for operators.
In designing for the young professionals driving the trend, the key component is understanding what’s important and valuable to them as a demographic. Features like nearby gym access, on-site co-working areas and shared laundry facilities can help residents reduce their overall living costs — and aid companies in attracting more overall spend for additional services provided as part of a package. Compared to bricks and mortar alone, this requires a fundamental shift of mindset on the part of real estate players.
Co-living is a long-term investment game. The initial financial outlay is significant, but the potential gains of the subscription-style housing models that are emerging are significant too. A total re-envisioning of housing norms is just around the corner, and there’s a big opportunity for startups that can iron out the creases of first-mover operators or improve on their offerings for the residential real estate market.
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