Ric Russell says the Bay Area is ripe for coliving with strong jobs market, transit and high rents.

SAN FRANCISCO—While the concept of communal housing gives a flashback to the 1960s for some; for others, it is a way of life in 2019, 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.

In the Bay Area to date, there are a couple hundred coliving beds run by mid- to large community operators in the space such as Common and Starcity. Such operators aim to manage communities of dozens to hundreds of tenants. During the next three years, this number will increase dramatically by an estimated 1,800-plus coliving beds. This is excluding the market for repurposing single-family homes as coliving spaces, where firms such as Bungalow and Hubhaus currently have hundreds of beds in the Bay Area.

“A strong job market, proximity to public transportation and increasingly higher traditional apartment rents are the key components to feeding coliving growth. Obviously those factors exist in all Bay Area markets which means that coliving is now an important component of the residential rental housing market, particularly in major cities and employment hubs such as San Francisco and Oakland,” Ric Russell, who specializes in the multifamily sector as executive managing director with Cushman & Wakefield's capital markets, tells GlobeSt.com. “And affordability and convenience are two key functional elements of coliving. Take for example, Common's MacArthur project in Oakland, in which a resident has a furnished private bedroom, and enjoys common kitchen and living areas, WiFi, laundry, utilities and weekly cleaning, and one payment conveniently covers everything. Starcity has similar coliving opportunities in San Francisco, and additionally is planning ground-up developments in San Francisco and San Jose.”

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.”