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Coliving a Niche Asset Class on the Rise

As rent seems to continuously rise in Denver, people are beginning to seek out more affordable options that don’t skimp out on amenities. Coliving is one option that centers around a type of intentional community housing where multiple people share a single home with shared areas such as bathrooms, kitchens and living rooms as well as other amenities.

Cushman & Wakefield has released a report on Coliving called Survey of the Coliving Landscape that provides an in-depth report on the multifamily subsector and how it is emerging as a favored, niche asset class.

Major operators in the space currently have 3,700 beds with another 9,300+ in the pipeline, with a high concentration in New York, Los Angeles, Chicago, Boston, San Francisco and Washington, DC.

Tenants who choose coliving do so for a variety of reasons, including flexible lease terms as well as a sense of community belonging and inclusion. These tenants are technology driven and enjoy the operating systems that coliving facilities provide. Amenities like advanced security systems and phone applications (for billing and maintenance requests) are a must for a modern renter.

Fueled by increasing affordability challenges and an expanding demographic of renters, coliving’s expansion has passed its early stages, and it now is a fully fledged niche asset class. Over the course of the next five years, significant capital will be deployed toward delivery of thousands of more beds across the world. As more companies seek to capture talent pipelines across a wider geographic area, more markets will become viable for coliving development.

Rent growth in Denver specifically, has increased by 27.9 percent in the last five years and with increasingly higher housing costs, coliving options will see growth in official affordable housing options.

“The way we live is changing,” said Susan Tjarksen, Cushman & Wakefield managing director. “Goals of homeownership and a suburban lifestyle have given way to more urban and communal preferences for those entering the workforce. Coliving options will become more ubiquitous with recent college graduates seeking to join a community and learn about a city that they are living in for the first time. As new generations enter the rental market, preference will be centered upon coliving brands that provide convenience, affordability and a vibrant community.”

According to a recent Prequin Fund Manager survey, 32 percent of institutional fund managers seek to significantly increase real estate allocations, and another 32 percent plan to invest slightly more. Against that backdrop and demographic, financial and societal trends such as high college debt, renters accounting for 65 percent of the under-35 cohort and only an estimated 5,000 coliving beds currently available, coliving is at a tipping point and increasingly on the radar of institutional investors.

“Coliving follows in the footsteps of niche asset classes like medical office and senior housing that began with a small footprint but have an increasingly large presence in investor portfolios,” Tjarksen said. “Demand is proven. Yet, there is still a lack of supply despite market expansion, and this enables institutions to enter during this inflection point. The ability to deploy large amounts of capital in a relatively new and small arena will have an enormous impact. However, this impact will shrink once more coliving companies emerge and more institutions with capital enter the fray.”

Individuals choose coliving for a variety of reasons. First, the cost of living in a shared community is less than in an individual apartment – approximately a 20 percent discount. Second, individuals who choose coliving also do so for the network of individuals with whom they can surrounds themselves. Much like an office building, the curated community in a coliving building fosters inclusivity that enables tenants to meet a variety of other people and expand their network. Firms that offer group activities within coliving spaces provide the opportunity for tenants to interact with other tenants, engage and build relationships. A third reason why tenants choose to colive is the ephemeral nature of community renting. Generation Y tenants are predominantly single, want flexibility and convenience and value authentic experiences.

Common areas that are integral to the coliving experience are a standard feature, providing the community aspect for individuals renting in a coliving building. Integrated technologies, such as Wi-Fi, are community essentials, especially considering the demographic of individuals opting into coliving. Other features that are prevalent amongst coliving firms are group events; catered events; fully furnished rooms with fully-integrated kitchens, bathrooms and washers and dryers; cleaning services; all-inclusive bills; gyms; and movability. A majority of coliving firms allow tenants to move into any company-owned building throughout the country.

The model offers tangible benefits and opportunities for both residents and operators.

“Tenants increasingly search for residential models that offer both affordability and the community lifestyle they desire,” Tjarksen said. “Simultaneously, multifamily operators have sought models that can optimize per-square-foot rent while understanding renter aversion to high unit-rent prices. The additional density provided in coliving allows real estate owners to enjoy substantially higher rents per square foot, while still providing a more affordable option for renters.”

 

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