As members of Generation Z are graduating from college and beginning careers in major cities, they’re navigating options for their first apartment. They are considering the high cost of rent, moving expenses, plus purchasing furniture and household supplies.
However, a new category of multifamily offerings gaining popularity in urban locales is co-living, which provides affordable options for modern housing with shared living spaces.
“We had a member tell us a few months ago that he packed up his suitcase and moved from one home to another via Uber, which is totally possible if you are living in co-living,” says Amalia Paliobeis, managing director of real estate for major co-living provider Common.
Co-living’s value proposition to Generation Z renters is convenience, flexibility, and most important, affordability.
“The emergence of co-living communities over the last few years has largely been a response to rising housing costs and the need for more affordable housing options—especially in major U.S. markets, which are attracting young professionals from other parts of the country,” according to a 2019 study of co-living from CBRE and Streetsense.
“The driver is still cost,” explains Jeanette Rice, Americas head of multifamily research for CBRE. “It’s hard to find affordable units in many of these markets.”
All-Inclusive Living
The savings are significant. According to Common, a co-living unit will cost the renter about 15% to 20% less than the cost of renting a studio apartment in that same market. On top of that, even with lower rent, co-living incorporates nearly everything a renter could need.
“It’s an all-inclusive rent. You have your utilities and Wi-Fi included. Even shared goods like paper towels and laundry detergent is provided,” continues Paliobeis.
Having all the necessities provided is a huge upside to the next generation of renters, not only in monetary savings but in the convenience of not having to buy new furniture and appliances. Most co-living units come fully furnished, and many come with much more. All of Common’s units come equipped with appliances, such as coffee makers.
“You also have a fully stocked living area and kitchen,” says Paliobeis. “You don’t have to worry about who is going to buy what and how you share it.”
Flexible Arrangements
While many equate co-living to dorm living, it is in reality much closer to traditional roommate living. According to a 2017 study from the Pew Research Center, over 31% of American adults share a household with someone they are not romantically involved with, meaning that many future renters are already accustomed to cohabitation. At Common, each resident gets their own bedroom (a far cry from the dorm living). Bathrooms are often shared, but may also be en suite. Most units only house between three and six roommates.
For a generation that does not want to be tied down and a younger workforce that might not know where their next job will take them, the flexibility and ease of moving is another major advantage.
“One thing that is really appealing that is often overlooked is it’s so easy,” says Rice. “You just pack a suitcase, and you move to a city and move in.”
Common, for example, offers all durations of leases, starting as short as three months. All it takes to move from one Common property to another is submitting a ticket through its system. A member of its team then will walk the renter through the options. Once the resident has made a decision, they just pack their bags and go.
The length of a resident’s lease is also not beholden to a roommate’s constraints. In a traditional setting, roommates would need to find a lease length that works everyone. With co-living, each renter is on their own schedule.
Social Benefits
Avoiding traditional rental constraints are not the only factors that draw young adults to co-living. Especially for those who are new to town, it’s the social opportunities that make it all the more appealing.
“Affordability is the No. 1 reason why people come to Common, but the reason they stay is for the community,” says Paliobeis.
Social programing is a major focus of many co-living companies and is crucial to resident retention, according to the CBRE and Streetsense report. “The more friends a resident has in their building, the more likely they are to renew their lease,” the report explains.
Though company-created programing is part of community building, Common, for example, focuses on facilitating connections and encouraging residents to start and join groups on its mobile app and create their own events (Common will even reimburse some expenses).
“We try to provide an ability for people to create their own organic experiences. These tend to be the better attended events,” says Paliobeis.
The COVID-19 Effect
Cohabitation might seem like a major con to co-living in the age of COVID-19. However, co-living companies have found ways to appeal to new renters and provide experiences to current ones.
“We’ve had over 20,000 inbound leads and, between April and mid-June, signed over 275 leases,” says Paliobeis. “We already had the infrastructure in place to do 3D tours, and everything is electronic—from the credit application to the lease signing. Executed leases are higher per month than pre-COVID.”
The pandemic does not seem to be scaring renters away from co-living. Often those who seek co-living have no choice but to live with others, whether in a co-living unit or a conventional dwelling. Co-living is not much different from traditional roommate living and might even have some advantages during this unprecedented time. Take a Common property as an example, where a resident is guaranteed their own bedroom and supplies are provided so renters can worry less about unexpected situations such as a toilet paper shortage.
To keep existing residents happy, Common also has found a way to foster community and make residents feel connected in a time of great isolation.
“We’ve been doing our community events virtually, and people are responding really well to it,” continues Paliobeis. “Not only can they attend events with the people in their building, but they can attend events [virtually] with people living in other cities.”
The events are so successful that Common plans to keep this type of programing even when in-person meetings are possible again. “The virtual leasing and the virtual events will definitely continue post-COVID,” Paliobeis says.
Common has no intentions of slowing down. Even as the economy has been hard-hit by the pandemic, the firm is expanding to new markets and forming new partnerships. While the average age of its residents is currently around 30, it has a keen eye for the future, identifying locales where young people are moving to and where people are making between 80% and 120% percent of the area median income.
Future Growth
There is little doubt that co-living will continue to grow in the coming years as “companies plan to open more than 55,000 beds in the next few years and have raised hundreds of millions of dollars of equity,” according to the CBRE and Streetsense report. With the growing popularity, potential profitability (32% to 38% rent premiums per square foot for coliving units compared to conventional apartments according to the study), and a wave of new renters for whom co-living checks all of the boxes, it appears to be a new multifamily frontier.
This does not necessarily mean an increase in buildings dedicated for co-living, however. Many investors are looking to add co-living as an alternative option in properties with an assortment of units. In fact, many of the places where Common operates also house studio, one-bedroom, and two-bedroom units. “This mitigates some risk of investing in standalone co-living assets,” according to the study by CBRE and Streetsense.
At the same time, co-living won’t become mainstream anytime soon. “It’s still a niche and will stay a niche,” says Rice. It is not a forever solution for many renters. Residents grow in their careers, make more money, and can afford to live more spaciously and privately.
“We all need more space than what co-living has,” she says, “but I think it makes sense for people who move to new cities. As college kids get started, where do they go? I think co-living is a great place for them.”
