Why the Co-Living Asset Class Is Projected to Demonstrate High Resiliency
Co-living apartment communities are typically found in up-and-coming neighborhoods or dense urban areas. Locations such as these are often attractive to younger tenants due to their proximity to transportation, restaurants, and nightlife. The growing attraction to co-living is a natural extension of the rising popularity of coworking spaces and boutique hotels. Communal spaces like these create opportunities for building a sense of community and mingling with peers and are revolutionizing the way younger generations live and work together.
Similar to how the rising trend of co-living apartments has created change in how people live and work, new social-distancing rules are causing people to reconsider how they coexist both at work and at home. Despite currently being in a time where people are refraining from being in close quarters with one another, the co-living asset class is projected to be able to make a strong return once the dust settles and the pandemic comes to an end.
Read ahead to learn why this asset class is likely to have a strong post-pandemic return.
The Affordability Culture
According to co-living start -up company, Common, co-living is “one of the best and most direct means to achieve optimal density and affordable housing in the modern urban context.” On average, the cost of a co-living apartment is about 10-20% lower than that of a studio apartment. In addition to a lower cost of rent, co-living apartments are typically pre-furnished and provide amenities found only at luxury facilities, including house cleaning services, complimentary WiFi and utility packages, and a rooftop deck with a pool.
Ultimately, the average apartment rent growth continues to outgrow income growth rates throughout the United States. According to MarketWatch, renting a one-bedroom in most major U.S. cities requires Millennials to spend about 77% of their income. As the average cost of rent to income ratio becomes increasingly unbalanced, the demand for co-living units will continue to heighten.
A Nationwide Housing Crisis
Although the recent economic disruption will certainly cause change in how co-living spaces are perceived, the undersupply of quality and attainably priced housing is likely to drive demand in this type of apartment once things have become stable again. With rents rising more quickly than wages, an affordable housing crisis has been created. In order to afford a modest, two-bedroom apartment in the U.S., renters need to earn a wage of $20.30 per hour, nearly three times the federal minimum wage of $7.25. In addition to this crisis, America’s housing market is undersupplied by 3.3 million units and this shortage worsens every year. Co-living apartment units, which are only a few hundred square feet, allow multifamily developers to create more living space within one building while helping tenants save money on both rent and utilities.
The Opportunity for Flexibility
Co-living apartments will continue to attract Millennial tenants because they are able to provide residents with the flexibility that they desire without undertaking huge risks. Because Millennials value flexibility, they are less attached to the idea of property ownership than previous generations and are no strangers to relocating and traveling often. These spaces typically offer shorter leases, creating the added convenience of being able to transfer from one property to the next whenever they desire. Particularly, as more and more people continue to work from home, the idea of being able to move freely without worrying about proximity to an office building will likely drive more demand for co-living apartment communities.
You may also enjoy Co-Living Apartments Create Attractive Opportunities for Both Investors and Tenants.
