Is Co-Living Really the Next Hottest Trend?
In the 1960’s, the term “commune” became one of the key buzzwords for young people looking for a unique place to live. It was derivative of “communal living,” where like-minded people gathered together to share living spaces while paring down their expenses. Many communes popped up and often included opportunities to grow their own fruits and vegetables, helping to reduce their cost of living even further.
Today, the term replacing commune is “Co-Living”. There are many different variations of Co-Living; including co-working spaces where people share working space but usually have no professional or financial connections with the people sharing the space. The terms “house hacking” has popped up to describe Co-Living arrangements, and the biggest supporters of this concept are Millennials.
Cost of Living: the Driving Force
When you think of America’s top cities like New York, San Francisco, Los Angeles and Chicago, you think of great restaurants, top cultural attractions and a vibrant workforce. Add to that list exorbitant rents, and you’ll see why Co-Living is becoming a popular option to living alone.
In San Francisco, for example, a small one-bedroom apartment can often rent for $3,000 and more. It’s the same in the other cities mentioned, and there’s no sign that the rents will decrease anytime soon. Rather than settling for roommates that are unknown to each other, Co-Living is often a diverse group of professionals who have unique jobs and work in different industries. Each resident in a Co-Living space is called a “member,” and the goal is to provide a private bedroom for each member and often a private bathroom as well.
Members enjoy many amenities like free Internet, maid services and the ability to make new friends. The friendship aspect is one of the main drivers of Co-Living, as many members are new to the city and don’t have many contacts or friends.
The communal spaces are designed to foster interaction and camaraderie, but are designed on a “human scale,” enabling interaction without feeling like a college food hall. Many Co-Living spaces have two entrances: one that opens into the public spaces, and one that enters into a private area where the bedrooms are located Because of the design, members can choose to interact with others, or opt to be off on their own.
Companies Behind Co-Living
Many have likened Co-Living to coworking. In fact, one of the top coworking companies, WeWork, has added Co-Living to their roster with WeLive. They currently have 3,000 beds in several cities in the U.S., and are having trouble meeting demand. In San Francisco, they received over 300 applications for 9 spaces that were available.
In fact, many Co-Living spaces include coworking spaces as well. The similarities between Co-Living and coworking are based on the fact that you’re able to be around like-minded people and form relationships. That’s a hallmark of Millennials — having connections with others. A strong sense of community is an extremely important part of the equation.
Another big player is called Common. All of their properties feature private bedrooms, with all other common spaces open to all. The homes are fully furnished, feature high-end kitchen appliances, and include basic supplies like pots and pans, coffee, paper towels, soap and other items. Their spaces also include weekly cleaning by a professional cleaning company, and most bedrooms feature an ensuite bathroom.
Currently, Common has Co-Living spaces available in San Francisco, Chicago, Washington, DC, Seattle, Los Angeles, and their largest market, New York City. Other cities and more beds are planned for the company. Ollie is another player in the Co-Living space. They have Co-Living facilities in Manhattan, Long Island, Pittsburgh, Boston and Los Angeles. They feature fully furnished units that includes towels, dishes and linens, weekly housekeeping, high-speed WiFi and cable TV and more. Their approach is to provide hotel-style housekeeping without the hotel feel. Other amenities include workout rooms, lounges, pools and more.
The concept is growing with investors providing millions of dollars to help companies expand the Co-Living concept nationwide and continually add new rooms, as the demand continues to grow. Co-Living may never replace the traditional roommate concept, but it certainly is having a major impact on how people live.
Is Co-Living Here to Stay?
There’s no question that there will always be a demand for multifamily properties, and that demand continues to increase substantially as both Millennials and retirees choose to postpone or even avoid purchasing single-family homes. The only question remains as to how those multifamily spaces will be used.
The traditional roommate arrangement is still a strong component of multifamily renters, and is increasing as rents continue to soar. It’s much easier to share rental costs instead of devoting 30% and more of an individual’s income to pay for rent. The only question remains as to whether Co-Living will become a major factor in the makeup of multifamily renters.
Demand for Co-Living rooms is increasing at incredible rates. The Co-Living niche is recognized as a legitimate contender, with demand for beds far outpacing availability. Over 52% of Co-Living beds were delivered in the past year, and global financing for expansion of this sector has exceeded $2.2Billion in 2018 alone.
This funding will help to meet the demand of a new generation of renters entering the rental marketplace, looking for convenience, affordability and a community of like-minded individuals. Will growth continue? The answer is not clear.
First, there are not enough meaningful numbers to analyze at this point in time, as there aren’t enough returns yet on costs for Co-Living assets. It’s also hard to draw a comparison for NOI (Net Operating Income) for traditional assets against Co-Living assets using the same market conditions, as there isn’t enough data available at the present time.
Another factor is that there are no long-term results on how many Co-Living renters are renewing their leases. While there is excitement and interest in the concept of Co-Living, it is yet to be determined whether this type of arrangement can sustain its popularity over time, as it hasn’t been around long enough to analyze renter acceptance. It’s one thing to have one roommate, but it’s quite another to share a living space with 10 or 12 individuals. Only time will tell if Co-Living is positively accepted.
With Millennials postponing home purchases and young tech professionals struggling to find affordable rentals, the concept of Co-Living is exploding in major cities across the country. Being with others who share the same philosophy and finding ways to save money is helping to drive the Co-Living phenomenon. There are now major players in all of the top U.S. markets offering Co-Living arrangements, many with amenities like cleaning, laundry facilities, special events and many others. Co-Living is a hot trend right now, but we need to wait and see whether it is here to stay.
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About the Author
Ellie is the founder of Blue Lake Capital, a real estate company specializes is multifamily investing throughout the United States. At Blue Lake Capital, Ellie helps investors grow their wealth and achieve double-digit returns by investing alongside her in exclusive multifamily deals they usually don’t have access to.
Ellie is the host of REady2scale, a podcast that shares true stories from within the industry, and the critical lessons learned, from the most successful real estate investors, innovators, developers, and more from around the globe!
She started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.
Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.