Coliving is an Emerging Niche Asset Class

DALLAS—While the concept of communal living conjures up the 1960s for some, for others it is today’s new normal, according to Cushman & Wakefield’s Survey of the Coliving Landscape. The report looks at this multifamily subsector and how it’s emerging as a niche asset class.

Coliving is a type of community housing where multiple people share a single home with shared areas such as bathrooms, kitchens and living rooms as well as other amenities. Major operators in the space currently have 3,700 beds with another 9,300 and counting in the pipeline, with a high concentration in New York, Los Angeles, Chicago, Boston, San Francisco and Washington, DC.

Fueled by increasing affordability challenges and an expanding demographic of renters, coliving’s expansion has passed its early stages and is now a fully fledged niche asset class. During the next five years, significant capital will be deployed for thousands of additional beds around the world.

According to a recent Prequin Fund Manager survey, 32% of institutional fund managers seek to significantly increase real estate allocations and another 32% plan to invest slightly more. Against that backdrop and demographic, financial and societal trends such as high college debt, renters accounting for 65% 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,” said Susan Tjarksen, Cushman & Wakefield managing director. “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.”

In addition, as more companies seek more talent across a wider geographic area, more markets will become viable for coliving development. And, with increasingly higher housing costs in gateway markets, coliving options will find growth in official affordable housing options, with programs such as ShareNYC providing a template for further public-private housing partnerships.

“The way we live is changing,” said Tjarksen. “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.”

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% 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 and common areas in a coliving building foster inclusivity that enables tenants to meet a variety of other people and expand their networks. A third reason why tenants choose to colive is the ephemeral nature of community renting. Generation Y tenants are predominantly single, want flexible lease terms and convenience, and value authentic experiences.

And, these tenants are technology driven and enjoy the operating systems that coliving facilities provide. Advanced security systems and phone applications (for billing and maintenance requests) are a must for today’s renter. Integrated technologies such as Wi-Fi are community essentials, especially considering the demographic of individuals opting into coliving.

Other features that are prevalent among coliving firms are group events, catered events, fully furnished rooms and kitchens, and washers and dryers, cleaning services, all-inclusive bills, gyms, and easy relocation. A majority of coliving firms allow tenants to move into any company-owned building throughout the country, a benefit to both tenants and operators.

“Multifamily operators have sought models that can optimize per-square-foot rent while understanding renter aversion to high unit-rent prices,” Tjarksen said. “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.”

Dallas is especially attractive for coliving for a number of reasons: it is 58% renter occupied and the median age is 32.7, within the prime rental window.

In addition, during the last five years, Dallas’ rental rates have grown by 27.3%, the fourth-highest growth rate in the nation, ahead of the bigger cities of Los Angeles, New York City and Washington, DC. Younger Dallas residents are struggling to afford a home, especially close to the urban core. Locally, the median income is $48,244, relatively low compared to other major metros.

Meanwhile, household costs are increasing. And, student loans across the nation have grown almost 157% since 2008. Perhaps not surprisingly, 30.9% of Dallas-area renters are cost burdened, which means they spend more than 30% of income on housing.

These factors make Dallas a prime target for coliving companies such as Common, which is exploring Dallas-Fort Worth as a future market and working with local developers for sites. While Common doesn’t have any Dallas homes opening up this year, it is actively looking into DFW for a Common community. Earlier this year, it announced expansion into Atlanta, Philadelphia and San Diego in addition to openings in New Orleans and  Miami.

“Coliving is not just unique to the coasts. It will thrive in Texas and especially Dallas,” Sandy Albert, Common’s senior director of real estate, tells GlobeSt.com. “I love Dallas because it’s one of the fastest growing and most exciting cities in the United States right now with a booming jobs economy and explosive population growth. And at the same time, it’s got soul, history and heritage. These demand drivers and attributes lay the perfect backdrop for why coliving will be an extremely attractive solution for renters who already love Dallas and those looking to move there. At Common, I’m actively looking at sites in Dallas to grow our community in such a beautiful city.”