Coliving: The Next Asset Class

International cities worldwide face unique challenges due to Covid-19, an unstable housing market, and a growing worldwide population. While these challenges are new, they are also an opportunity to rethink how we approach urban living. Coliving, by design, offers a solution to these challenges. With more efficient use of living spaces, a higher return on investment, and an opportunity to create a more sustainable way of living, coliving is becoming a key asset for the next generation of real estate investors.

Globally, co-living is showing signs that it is a resilient asset class, even in a pandemic. Sustainably and purposefully designed, coliving residences are the perfect product for the young, single, nomadic individual, which is a lifestyle that has exploded in popularity in recent years. According to MBO Partners, 4.8. million people describe themselves as ‘digital nomads,’ or those who work remotely, with an additional 17 million aspiring to become someday nomadic. These figures are only poised to increase due to the Covid-19 pandemic.

So How Does Working Remotely Impact Coliving’s Popularity?

Chris Bovaird, an associate professor in the department of management at U of T Scarborough, highlighted the current climate surrounding remote work when stating “One of the unintended impacts of this lockdown is more people, having tried remote working for the first time, will realize they really don’t need to spend hours a day commuting to an office.” This quote emphasizes the changing perspective of remote working, and the critical shift for individuals placing more importance on home life, living comfortably while making connections outside of established office space.

With so many people stuck inside the traditional small apartments that single people in major cities can usually afford, many search for an alternative that provides space, convenience, and comfort. Coliving is the perfect solution to this growing need and shows no sign of slowing down. Co-living benefits both investors, due to the higher return rates in a stagnant environment, and renters, who benefit by having affordable places to live and a community in some of the worlds most robust housing markets.

Lets Breakdown How Coliving Will Benefit Investors;

While coliving is nothing new in the European and Asian markets, the sector is still mostly unorganized in North America. This market provides real estate players and investors a chance to boost revenues in this segment by getting in on the ground floor of an emerging new asset class. “Coliving is transforming traditional renting and is being driven by a highly mobile millennial workforce and a growing student population,” As Dhruv Agarwala, Group CEO, Elara Technologies, which controls PropTiger.com, Housing.com & Makaan.com told Financial Express. “[The] young population wants flexibility in housing options that allows them to move quickly in a highly dynamic work environment. Co-living provides ultra-modern living spaces with a plethora of amenities and a like-minded community, all at pocket-friendly rates”.

Global funding in the coliving space has increased by more than 210 percent annually since 2015, totaling more than US$3.2 billion, according to JLL. In 2019, $800 million has been secured, with $283 million in the pipeline, the data shows. Rapid growth is seen as directly tied to the unaffordable marketplace in major cities such as Toronto. Coliving resonates with young people who do not want to sacrifice designer furnishings and convenient locations and agree to a communal way of living.

Coliving follows in the footsteps of niche asset classes like medical offices and senior housing, which began small but have had an increasingly significant presence in investor portfolios. As Susan Tjarksen, Cushman & Wakefield managing director, has said, “Demand is proven. Yet, there is still a lack of supply despite the market expansion, which 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.”

The investor benefit is two-fold, as stated by Domo’s Coliving. First, the coliving model offers a higher net income per square foot while also targeting a broad market with fewer housing options. Because of this, “coliving is more resistant to a downturn than traditional multifamily,” and investors are starting to see the comparable benefits between coliving and other asset classes such as student housing.

Coliving is attractive to both renters and investors, as tenants receive ample amenities and conveniences included in their rental costs, while more units in a building result in a higher overall return for investors. As the world as we know it continues to grow and change in unexpected ways, the desire for community, convenience, and flexibility is more significant than ever. Coliving is the answer to the new way of the future and proves its validity in tomorrow’s investment potential.