Community Sells: Why Millennials Want Co-Living and How Operators Benefit
For a growing number of millennials, amenities aren’t enough anymore. Instead, they’re after a perk that’s much tougher to quantify: community. Here’s why millennials want “co-living” arrangements — and how operators benefit.
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Put simply, co-living is: “a living arrangement in which the residents share some aspects of their living spaces with each other.” In many respects a “natural evolution of the student housing model,” co-living spaces can offer the “convenience of hotel living” through all-encompassing arrangements like this one: a monthly rent including “wireless internet service and weekly housekeeping services, including bed linen, towels and toilet paper, along with shampoo and hand soap.”
Once a fringe concept, co-living is starting to become the new normal for many young adult renters. An April 2019 Commercial Observer article makes clear: “co-living concerns… have raised tens of millions in investments during the past year or so,” with one London-based company even raising $420 million to advance this novel housing cause. What’s driving the surge in interest?
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First off, a shift in renter demographics and preferences is turning the tide. As the Times of San Diego notes, “people are living with roommates in rentals for longer and later into their lives.” In San Diego alone, co-living company Common found that “70 percent of San Diegans aged 20 to 34 are not married, and 65 percent of non-family households are renters.”
Indeed, Common CEO Brad Hargreaves identified some persistent millennial problems during his time working at a tech education startup in New York City. Hargreaves found that many millennials were already living in multi-bedroom apartments, but they faced a handful of troubles worth solving: securing new roommates after a tenant decided to move out and keeping apartments furnished as people took couches and other shared belongings with them.
Forbes paints a detailed picture of these urban tenants, arguing that they want more than stability — they want connection. As Angelica Donati writes: “increasingly, urban residents have been looking for places that foster a sense of community, as well as providing great accommodation.” Desiring more room than a “micro-living” space provides, these savvy city renters “value their privacy, care about what they are sharing and whom with,” according to Forbes.
A recent Curbed article strikes at the heart of the issue, quoting Shaunta Bruner, Senior Associate with real estate research firm, Delta Associates: “Everybody has a rooftop grilling area or a dog park. Successful developers need to create things that tell a story and tie together the community.” Here’s a sense of how co-living companies make this happen…
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From common spaces…
While common spaces aren’t the entire equation, it’s critical that co-living arrangements have places for people to gather and experience a range of events. A recent NMHC survey illustrates the growing value of face-to-face exchanges; the 2018 Consumer Housing Insights Survey “found that 83 percent of respondents believed face-to-face socializing with friends and family is an important housing feature, while 58 percent believed apartments should ‘provide helpful services and amenities for the surrounding community.’”
The options can vary quite a bit. Some WeLive apartment options, for example, “can have a semiprivate or private area for sleeping, surrounded by more open, shared spaces… staffed with a concierge, and offer bottomless coffee and beer.” A trade group called Hotel Alternatives published a February 2018 report suggesting a “sociable environment” was key to attracting co-living residents, especially through a range of shared spaces: “access to game rooms, community events, cinema, sauna, and spa…all with a hassle-free system of just paying one bill.” However, many real estate experts agree that common spaces aren’t enough on their own: companies have to do more leg work to build community. Hosting events is a great way to start.
…To memorable events…
As authors at Curbed note, “the best property managers have turned features into events, and find more creative ways to make use of areas like communal kitchens.” In two mid-Atlantic properties, for example, real estate companies don’t stop at providing communal gardens — they “go one step beyond and contract with a local gardening company, Love & Carrots, which provides residents with monthly samples of vegetables and herbs harvested on the premises and demos preparations for these ingredients.”
This kind of creativity is bound to set the properties apart as co-living gains steam. After all, Hotel Alternatives’ recent report makes clear: “co-living is not just with the current pricey real estate markets of many major cities, but with how cities themselves will function in the future. People will choose functionality above all, a place to crash over a place to own.”
….To meaningful tech!
Naturally, there’s great potential for tech to bring these renters together. To this end, “Common provides co-living tenants with a community app that ‘connects people based on shared interests.’” At WeLive, there’s also an app “that connects the WeLive dwellers to request services or plan activities with other WeLive guests.”
Kin, a “family-focused coliving community,” is taking things a step further. Its tech team created a “ground-up app” designed specially for “residents to communicate, meet each other, and ideally form community.” As one Kin Board of Directors member puts it, “I think the basic level of success for Kin is if we’re getting residents to book and share babysitters together through the app. That’s the kind of thing residential operators haven’t done in the past, and it’s a big opportunity.”
Node, a company on a quest to “create a truly global network” of co-living buildings, is working to build a “global residents’ app.” The project is set to be quite wide-reaching: “this will encompass everything from access control to deliveries, from the resident application process, through maintenance, to payments, as well as governing internal messaging groups which are tiered for the global or local community.” Anil Khera, CEO of Node, says this kind of technology can transform our sense of “home”: “the concept of being able to call multiple cities ‘home’ can be fostered through technology that connects our Node residents worldwide.”
Needless to say, for all that residents get out of co-living arrangements, the question becomes: how do operators benefit?
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From high occupancy rates to significant rent-per-square-foot, co-living presents a range of tempting possibilities for operators.
High occupancy rates:
Companies operating co-living arrangements across the U.S. point to high occupancy rates as a considerable selling point. To name one example: ALTA LIC, a Long Island property “operating 169 [units] as furnished co-living suites with a total of 422 bedrooms.” After less than a year in operation, its owners report that “73 percent of these units are occupied, with renters paying from $1,260 to about $2,200 per month for a bedroom.”
While operators have to keep track of a quite a bundle to keep co-living residents happy (from wi-fi to hand soap!), many seem pleased about their returns in such high-density floor plans. As a recent National Real Estate Investor article notes, “these co-living suites earn an average of 44 percent more income in rent per sq. foot than the more conventional 297 luxury apartments at the 43-story” ALTA LIC tower. Importantly, its owners stress: “the net operating income from these units is also 30 percent higher per sq. foot, even with the extra cost of co-living amenities like the housekeeping service.”
Appeal beyond coastal cities:
As Fortune reports, Common is just one example of a co-living operator expanding its scope beyond high-end housing markets like New York and San Francisco. Proving there is demand for co-living in cities besides the typical coastal hotspots, Common is “teaming up with real estate developers in Philadelphia, Atlanta, Pittsburgh, and San Diego on $300 million worth of new properties in those cities over the next three years.” All told, Fortune notes the endeavor will “more than quadruple Common’s current footprint — adding more than 2,200 beds for rent across the four new markets.”
When it comes to resilience during a recession, some co-living operators are finding inspiration from a related arena: co-working. A CB Insights report showcasing co-working company Regus’ “strong performance in 2009” suggests co-living operators have reason to feel hopeful during an economic downturn. Indeed, they’re banking that potential lease signers will veer toward co-living for the same reasons firms have steered toward co-working: “wary of making large overhead commitments and thus prefer short-term leases.”
The price could also be just right to keep co-living providers thriving during a recession. As PMG’s X Social confesses: “we’re not inelastic, but… our biggest competitive advantage is not the coworking [on site] or the bar downstairs, it’s price. In almost every single market we operate, we are the most affordable entry point for a Class A asset.”
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Elvina Beck founded PodShare in 2012 with the sincere belief that: “change opens you up as a person.” Unlike other co-living options, PodShare arrangements have no bedroom walls; “members” rent a bunk bed within a common pod for tantalizing rates starting at $50/night, $280/week, or $1,000/month in the highly sought after Los Angeles metro area. These rates include a range of shared amenities (from shampoo to wifi) and free residents up from paying a security deposit.
To Beck, this kind of co-living presents a range of opportunities for residents to network and experience firsts: “maybe even as simple as someone saying they have an extra Dodgers ticket and you get to go to your first baseball game!” However, Beck warns that unflattering social media reviews are bound to crop up with unusual co-living arrangements.
She maintains that PodShare has a “broad definition” of harassment to ensure resident safety, one that makes clear which behaviors won’t be tolerated. However, when online reviews seem to take issue with co-living in general, not privacy in particular, Beck concludes: “sometimes, co-living just isn’t right for a person, but we’re very transparent about the way our model works, and we’re excited when it truly opens doors for people.”
Beck also stresses: “there’s a high bar to entry” navigating legal, financial, and operational issues in highly-desired coastal housing markets. In her words, “licensing, coding, deposit issues —you face so many problems that you’ve got to really love the work.” Beck certainly does; she’s been living in PodShare bunks ever since she founded the company six years ago.
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All told, co-living arrangements can offer residents a powerful sense of community and relatively affordable rents in highly-desired housing markets. Operators, meanwhile, benefit from high occupancy rates, appealing rent-per-square-foot equations, and a potentially recession-proof business model.
Above all, co-living represents a significant opportunity for operators to seize on a profound shift in housing preferences and urban living. As a recent Inc. article notes, “projections show that roughly two-thirds of the global population will live in cities by 2050.” Author Ben Lee argues this major transformation will follow in the footsteps of the industrial revolution, requiring: “new models for how people work and live.” Co-living spaces, he stresses, serve as a “first draft for what this might look like, offering high-density housing that trades physical space for affordability, convenience, and community.”
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