What The Real Estate Industry Can Learn From How Co-Living Succeeds

Real Estate

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Co-living has been one of the top definitive real estate trends of 2019. Over the past 12 months, we’ve seen major projects announced, billion-dollar funds being raised and top-tier developers diving in.

However, this market of ours doesn’t exist in isolation — rather, it’s representative of broader trends in the real estate industry. Even developers who aren’t considering building co-living could take lessons from the growth and popularity we in the co-living space have experienced with renters. Here are a few takeaways from co-living’s rise that have broader applications in real estate development:

Housing is a consumer product.

A real estate developer once told me that he “builds what the bank wants, not what the renter wants.” As he explained, the bank was financing his housing development, and he was loathe to challenge it. Unfortunately, this attitude is pervasive and underlies much of why I believe the real estate industry is often seen as stuck in the 20th century.

Whether for sale or rent, housing is a consumer product. In fact, it’s the single largest consumer purchase that most of us will make. But people who make this product largely don’t think it about it as such, and they rarely employ the type of people who build their careers designing great consumer products: user experience designers, product managers and user researchers, for example.

Co-living is a notable exception, featuring design teams and philosophies more in line with consumer product companies. And the end result has been notable: Co-living brands have built track records of strong demand, high occupancy rates and above-market yields. But what if this wasn’t a result of co-living’s inherent strengths, but rather its champions’ unique focus on customer experience?

Affordability is the best amenity.

For too long, urban developers have been focused on building swankier and more elaborate amenity spaces to justify ever-higher rents, focusing primarily on the high end of the luxury market. But my experience in co-living development has indicated to me that affordability may be the best amenity of all.

With over one-third of urban households rent-burdened — and rent growth outpacing income growth for at least the past two decades — there is a major opportunity in addressing the affordability challenges facing American households. Yet many luxury developers are chasing a small, fixed segment of the rental market who are making hundreds of thousands per year. By offering market-rate housing at affordable price points, housing developers would be able to differentiate their product and attract an underserved audience.

Innovation driving affordability is a trend that reaches beyond residential real estate. Companies like Neighborhood Goods and Showfields are lowering the barriers to entry for new brands looking to establish a retail presence, enabling those brands to sign shorter, smaller leases to gain a retail foothold. Similarly, co-working got its start by enabling entrepreneurs, freelancers and small businesses to sign lower-cost leases for smaller spaces and flexible periods of time. While real estate owners think in terms of rent per square foot, many of their customers simply look at the dollar amount they have to pay each month.

Human connections matter.

In a recent study by Cigna, almost 50% of adults reported that they felt lonely sometimes or always, with Gen Z and millennials reporting the highest rates of feelings associated with loneliness. The loneliness epidemic, which is a result of a variety of factors such as the increase in remote work and social media use, is a real issue for younger generations and society as a whole.

The co-living formula provides a solution to that. Co-living isn’t just a housing product; it’s an experience that allows housing to solve a human problem beyond the need for shelter with community is at its core. It might be easy to count community as a feature of co-living, rather than a benefit, but the fact that people are drawn to co-living as a housing solution offers proof that the chance to build community is a large factor of its popularity. In fact, 67% of our members regularly attend our curated community events, both in and outside of their homes.

Developers and operators in other sectors are also finding opportunities to build community. At the building where our NYC headquarters are located, for example, employees from across the startup world have the chance to meet each other through events like potlucks and interest groups, and in dedicated spaces like a bar and cafeteria. By baking opportunities to connect into their product, developers can provide a unique value to prospective renters and help solve a pervasive urban issue.

Not every real estate developer should develop co-living. But moving forward in 2020, everyone touching real estate — particularly housing — should understand the driving forces and innovations behind this fast-growing industry trend.

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