Do you know that 51% of European investors plan to invest in coliving over the next 3 years? A survey even showed investors with €1tn+ of combined assets planning to use €2.6bn to target the sector over that period.
A huge investment, no doubt – but is it one worth following for others? That’s what we’ll help you figure out today.
Understanding Coliving: What Is It?
Of course, we can’t even begin to talk about investing in it until we know this. What is coliving? Simply put, it’s a shared accommodation setup where several people live in the same dwelling and pay its operator for the right to do so.
A coliving space can differ from traditional rented dwellings in different ways. In general, you can expect coliving properties to involve facility-sharing of some sort.
As an example, tenants usually have their own (often-solo) bedrooms in co living properties. On the other hand, they usually share spaces like kitchens.
This ties into another of coliving’s features: it’s a form of communal living with an emphasis on social experience. Tenants use the same kitchen, perhaps even preparing meals for each other, and form a community through their interactions.
Coliving’s Rise and Benefits: The Source of the Demand
The coliving market is a growing one, as one can see in the industry’s continued expansion. In our country alone, statistics show it, with another 8,789 beds already in the pipeline.
But why is there so much appetite among real estate players for this? Essentially, the following key factors are driving that and the industry’s growth:
- More diverse households with needs different from those served by traditional housing
- A growing emphasis on access and experience over ownership, especially for people of millennial age and below
- Growing interest in dwelling flexibility to match many young professionals’ nomadic setups
- A rising number of people moving to urban centres
- Real estate prices going beyond most people’s budgets
- A surge in loneliness and social isolation
Want to know more? You can learn more about these in our article on the factors driving interest in the coliving model.
The Investment Opportunity: Reasons to Invest in Coliving Supply
A fair bit of what we discussed above may already be used to argue for co living investment. After all, we’ve shown why greater demand for this service makes sense.
Still, there are even more reasons for it being attractive to investors. Let’s list some of the most important (and appealing) here:
1. Good Occupancy Rates
Given the high demand for coliving, occupancy rates for co living property operators tend to be good. And it’s true for all sides of the globe, actually. At The Citylifer, ours is at 99.8%, for instance, while Singaporean operators claim 95%!
2. Higher Revenue per Square Metre
This highlights just how profitable co living property investment can be. Note that we’re comparing it to traditional accommodations like rented apartments here, by the way.
Compared to traditional landlords, coliving operators can use methods like space sharing to fit more units on a floor. Private coliving rooms are often around 50-75% smaller than a standard studio apartment, as a result.
This can lead to them near-doubling unit numbers (and rental income!) per floor. It also explains why companies like US-based ALTA LIC can claim to earn more dollars per square foot than traditional rented apartments in the same buildings they use.
3. Tested Resistance to Disruptions Like the Pandemic
Coliving drew investor interest when people saw how resilient an asset class it was during the Covid-19 lockdowns. A Cushman & Wakefield report from November 2020 even showed it doing 23% better than conventional properties in Q3 of that year.
In an interview from 2021, the VP of Operations at US-based operator Common said that one of the reasons for this was flexibility. Short-term and more flexible leases fit better into the uncertainty of the pandemic, so coliving became a preferred option.
4. Opportunities for Diversification
Common’s VP also noted that one of the things that helped their company survive the pandemic was the ability to pivot target markets during the lockdowns. This was because Common went from serving international travellers to healthcare workers as coliving tenants then.
Most coliving operations have this same flexibility, and do target a wide range of residents. That said, there are also ones that target smaller markets, from single mothers to seniors.
In addition, despite most coliving operations being urban, they can be spread across a wide range of areas. There are actually rural and even suburban options for those who prefer to live out of the city, for instance.
All of this means more chances for diversification in the markets your investment taps into!
5. Appeal to Impact Investors
Finally, coliving is likely to attract those who believe in improving social and environmental conditions even as they seek profit. See FORE Partnership’s investments in Mason & Fifth, for example, or better yet, investors’ interest in The Citylifer’s own developments.
With our community-oriented vision and meticulous ESG policy, those who invest in coliving with us know they pursue more than their own wealth. They’re also investing in a better future for both the environment and society.
For society in particular, coliving’s design may offer a solution to the increased loneliness and social isolation people feel around the world. It allows residents easy entry into a community where mingling isn’t just easier but encouraged and supported. This way, they can make friends and develop meaningful relationships faster.
How to Invest in Coliving Spaces
So, how can you invest in coliving spaces? There are three main options:
1. Direct Investment
Direct investment is fairly simple in theory but complex in practice. Investors who take this route often purchase or acquire the rights to develop a property, then convert it themselves into a coliving space.
While simple in the sense that there are fewer stakeholders here, this also requires the most effort from the investor. From getting the right building in the right location to setting up community-building systems, there’s a lot to handle.
That makes this the hardest of all investment options for beginners.
2. REITs and Funds
Let’s begin by showing what they mean:
- REITs or Real Estate Investment Trusts are associations or corporations that buy income-generating real estate like coliving spaces.
- Funds (specifically Real Estate Funds) are mutual funds investing in securities from public real estate companies like REITs.
The main difference between the two is that REITs are traded like stocks, so you get returns from them through dividends. Meanwhile, the returns from funds are from value appreciation.
Either way, you can technically invest in coliving companies through both. REITs are better for those seeking dividend-based income, whereas funds are better for longer-term investors who want capital gains.
As an aside, by the way, the number of REITs offering coliving investments is still on the small side. This is normal: coliving is still fairly new, so it will take time for trusts like this to start investing in it.
3. Partnerships
Investors can also partner with existing operators. The most common setup is for an investor to partner with an operator and have them convert property the investor already owns into a coliving space.
This can be a good way to enter the industry without saddling yourself with too many new tasks. We do our partnerships like these at The Citylifer, actually – you can learn more here if you wish to work with us.
Key Considerations and Challenges
Everything may sound simple thus far, but we should note now that co living investment has its share of challenges. A lot of things should be kept in mind before diving into this industry.
Murky Regulatory Environment
Because the industry is still young, the laws surrounding it remain fairly underdeveloped compared to those you’d find for other industries.
That means legal questions may arise at times that pose challenges to operators. For example, if they have a limit on how much to charge for specific unit types or if zoning laws permit a co living property in an area.
Operational Challenges
Scalability, maintenance, community-building, tenant turnover management – there’s no end to the challenges that come from managing co living spaces.
Longtime operators will obviously handle these better due to prior experience. Those new to the industry may struggle most here, as they won’t have practical experience in the relevant skills yet.
Market Risks
As with every other investment, coliving is subject to market risks. Economic downturns, social shifts, sudden changes in housing preferences – all of these may well hamper the growth and profit to be found in the industry.
Lack of Stock
One of the key things that may stop people from entering the sector is also the simplest: lack of actual investment options. Lack of actual stock to purchase obviously means those without options for direct investment will struggle.
Getting Started on Coliving Investment
The steps to investing in a co living property are similar to those for investing in other industries. That said, we’ve provided a beginner’s step-by-step guide to the process to get you started.
1. Do Your Research
Getting to know more about any industry before you invest in it is a given. To that end, a fair number of our articles can help. We have everything from introductions to the concept to developer’s case studies.
There are also many other sources you may want to consult. Books like The Co-living Revolution are good intros, particularly for direct investors. Real estate service companies like CBRE also regularly publish reports on the sector.
This will give you a solid knowledge-base from which to build your understanding of the industry. From there, you’re more likely to understand any further research you may do for your plans, from reading up on REITs in the sector to potential partner-operators.
2. Identify Your Investor Profile
This means you have to figure out what your risk tolerance is. Depending on when and how you enter the market, coliving as an investment can be lower- or higher-risk. It’s generally seen as higher-risk than traditional real estate, though.
You may also want to figure out what you’re interested in when it comes to returns as well as actual resources. This will be vital in the next step, as you’ll see below.
3. Find Suitable Financial Instruments
There are a lot of investment instruments you can use to enter the coliving market, as we said earlier. From REITs to even crowdfunding options, coliving investors can now find something to suit their unique investor profile.
A good deal of it ties into what you hope to see in terms of returns. As we said earlier, for example, REITs would be better if you want passive income from coliving. Meanwhile, funds would be better for those willing to do long-term holding.
What you can afford to give to the investment also plays a part. More active investment options – direct ownership and even partnerships – obviously expect you to throw more of your effort into them. From actual industry expertise to management hours, the requirements for these may well be out of most new investors’ reach.
4. Hire and Consult Professionals to Guide You
Whether you end up seeking a financial advisor or a real estate lawyer (perhaps both) for what comes next, what matters is that you have experts to help. They can untangle the complexities of actual investment for you.
The idea is to find people who can turn your plans into reality. With them, you should be better able to see how to start the investment, from reaching out to a potential partner-operator to having your broker get you stock in a REIT.
We actually offer coliving consulting at The Citylifer, if you want to get started. From co living property feasibility studies to business strategy development, we can help you build the structure you need to give your concept actual form. Simply visit this page to learn more!
Investing in Coliving – Is It In Your Future?
In sum, coliving may be a good investment option for many people today, thanks to a slew of benefits. Between its seeming resilience to upheavals like pandemics and the socio-economic factors spurring demand for it, there are many reasons for optimism in this type of property investment.
That being said, there are also potential pitfalls. Still, a great many of them can be overcome with due diligence, as well as the right coliving projects and partners.
As coliving operators ourselves, we advise that you seek other stakeholders who aren’t just transparent but also able to show you clear roadmaps for their parts in the project. Unless you’re bringing market experience to the table yourself, it’s also best to seek those with a successful track record in the industry.
At The Citylifer, for instance, we have years of proven experience in our services, as well as clear guidance and answers for our partners. If you wish to learn more about how to start a partnership, reach out to us!
FAQ
There are many different ways to invest in coliving. These include REITs, funds, direct investment, and partnerships.
The price of entry varies, but usually, REITs tend to demand the least capital from investors. The most capital-intensive co living property investment option, on the other hand, is often direct investment.
Generally, REITs will have the highest liquidity among co living property investment options, as they’re traded like stocks.
These are good questions to get you started in this property investment:
- What is the project’s target market and what is the estimate for demand vs. current supply?
- Are there projections yet for occupancy rates, returns, and income?
- What expenses are entailed and what sources of capital will cover those?
- Who is the operator and have they experience in running coliving projects?
