The fast-emerging “co-living” real estate rental sector could transform urban living in cities around the world that are becoming increasingly unaffordable for younger people struggling to get a foothold in residential markets, the Global Summit of the Class of 2020 think tank heard on Tuesday. But government housing regulations are failing to keep up with the pace of change and this is holding back innovation from co-living operators in developing accommodation for some of the most dynamic economic groups flocking to cities, such as students and creative professionals.
Entitled “The Future Is Blended,’” the summit brought together for the first time the leading co-living and student-accommodation brands in Europe and the United States to debate how the urban-living and residential-investment revolutions are converging at accelerating speed.
The speakers included executives from The Student Hotel, The Collective, Common, and Quarters, as well as established market players such as Greystar, New York University, Scion, and Cushman and Wakefield.
Charlie MacGregor, CEO and founder of The Student Hotel, said, “Regulators need to become flexible because not all the existing rules are usable for our sector. Co-living is a new asset class and we need to address it as such with new rules so that our products can reach a wider audience. The Class of 2020 is well-positioned to facilitate that process.”
New co-living developments are often challenged because building and zoning codes have not caught up, Stephanie Fuhrman, managing director global innovation at Greystar, said. “The industry needs to educate government authorities about the products we are offering, but that is a multi-year process.”
More built spaces are needed to help municipal governments understand co-living as an asset class, Reza Merchant, founder and CEO of The Collective, added. “We have been engaged with the mayoral authorities in London since 2013, before co-living was even the term we used. Our vision was difficult to understand on paper, but now that it exists, the authorities understand and evangelize it. This has helped to unlock institutional funding and further potential growth for the sector.”
See below the other 10 key takeaways from the Class of 2020 Global Summit panel discussions:
The moment for co-living is now.
Affordable housing is an issue for every gateway market in the United States and across the globe, said Susan Tjarksen, managing director, Cushman and Wakefield, and co-author of a recent benchmark research report on the co-living sector: Is 2019 Co-Living’s Moment? Co-living models are more space-efficient than regular apartments and allow more people to live in urban centers where they need and want to be. A growing number of people want to be able to rent accommodation that does not consume 50 percent of their pre-tax income, and it is becoming more socially acceptable for younger generations to rent. In fact, renting as a lifestyle choice is here to stay, Tjarksen predicted. “Co-living addresses that need and is on the way up. It is a vast growing market niche in real estate that has already started to garner institutional support.”
Affordability is key.
A growing group of people are being left behind in the traditional housing market, where prices for owner-occupier homes have soared and rental increases are outpacing wage growth by double digits in many U.S. cities, but also in Canada and Europe. Average income earners in the United States would be pushed to pay $1,600 to $1,800 a month to rent a new luxury studio, but a rent of $1,100 a month for a co-living product that offers a smaller personal space, but bigger and more communal facilities, is an attractive alternative at a time that rental burdens are increasing and young people are delaying marriage.
Millennials are on the way out; Generation Z is on the way in.
In the United States alone, about 78 million young people belong to Generation Z — those aged between 13 and 23 — and they are becoming a bigger cohort than the millennials that have gone before them. More than any other generation, Gen Z will be able to demand housing that meets their needs and that will result in a major shift in how residential property will be built in the next 20 years.
New generations value experience over material possessions.
The rise of co-living models with shared facilities, such as recreational rooms, is not only driven by demographic and macro-economic shifts, but also by shifts in value systems and a growing awareness of the need for human connection, said Merchant. “The problems we’re solving are a global condition. Cities around the world can be isolating places. This will only worsen, and that’s a key motivator for us. At The Collective, we are not focused on any type of person or specific demographic, but on a certain mindset. Our members are between the ages of 18 and 65.”
The future is blended.
Even established multifamily and student housing operators like Greystar are blending their business models. “We are watching what everybody else is doing in terms of work, live and play and where it converges and are looking at how we can adapt that in our models,” said Furhman. The company is looking at how it can combine purpose-built housing with flexibility and is aiming to offer all possibilities of the spectrum, from hotels to purpose-built rental homes and serviced apartments in the same building or the same block. “It’s really about flexibility and being able to accommodate people who are globally minded and locally rooted.”
Institutional players are catching on.
Other traditional players are also catching on that the future is blended, noted Brad Hargreaves, founder & CEO of Common. Lenders such as Fannie Mae and Fanny Mac are starting to understand that a mix of co-living and multifamily is becoming the new normal and are warming up to these new concepts, he added. “It’s partly us, getting smarter about how to present what we want to develop, and partly about making an institutional product that appeals to the lending market while getting the same returns.”
Co-living concepts are recession resilient.
The core tenants of The Student Hotel are students, but its hybrid model and smart room design allows the firm to serve travelers and young professionals, as well, so the company’s cash flow is not based on a single group. “It’s a pretty simple concept,” said MacGregor, “and the new generation really understand[s] it. We are a developer/owner/operator and now asset-heavy operational exposure is the flavour of the month. But back in 2003 when I first started there was no private equity company or anybody else who wanted to work with me.” The Student Hotel currently has 25 locations and 10,000 rooms operational and under development in Europe. Other real estate sectors fluctuate in line with economic cycles, but demand for good-quality homes and places to live will only increase in the long term, added Merchant.
Safety first.
One of the key concerns of regulators in relation to traditional zoning rules is making sure co-living operators create safe, high-quality spaces, according to Jaclyn Sachs, director of strategy & operations at the Office of Neighborhood Strategies at the NYC (New York City) Department of Housing Preservation & Development. She said that the market has shown it is capable of creating high-quality models and her department is now interested in exploring new initiatives, also for senior living, and engaging with partners to see how co-living can interact with the department’s own role. “We are also looking at other cities for ideas and keeping tabs on what they are doing,” she noted.
It’s not rocket science, but it makes sense.
Three years from now, the real estate industry will have embraced co-living, predicted MacGregor. “Blended living is definitely here to stay and it’s already taking great leaps and bounds, but seeing is believing. It’s not rocket science, but once you’ve seen it, it makes sense.” Reza, said he believes the sector will evolve and develop “a truly intergenerational offering that blends public and private space, bringing together human beings of all ages to live in a communal and connected way.”
It’s about attracting and retaining talent.
This is the century of cities, and cities will account for 70 percent of the world’s population by 2050. Frank Uffen, co-founder of The Class of 2020 and director of partnerships at The Student Hotel, pointed out that university cities are magnets for talent, and there is a very close relationship between universities, people and accommodation. The Class of 2020 was set up in the aftermath of the Global Financial Crisis a decade ago, when it became clear that old models weren’t meeting the needs of new and growing groups of students against the background of increased international mobility. Uffen predicted that The Class of 2020 would continue to play a key role as an independent think tank, as the student accommodation and co-living industry evolves, in supporting cities to attract and retain talent with the right housing propositions and by helping remove barriers to entry with research and through facilitating broad industry discussions.
