Cushman and Wakefield Coliving During Covid-19 Report Summary
On November 12th, 2020, Cushman & Wakefield released a report entitled ‘Coliving During Covid-19’. The purpose of this report was to analyze how communal living has adapted to our ‘new normal’ and look into the future of coliving investments. The three main areas of observation covered in this report include Rents, Occupancy, and Rent Collections. HOME Is Coliving has reviewed this report and has broken down the key topics to indicate that while the future may be uncertain, experts are optimistic that coliving will continue to be a thriving business post-pandemic, and the numbers prove it.
While the Cushman & Wakefield report is based on US Statistics, as the United States has more densely populated cities where coliving is more widespread than in Canada. However, we believe that these figures demonstrate a wider global implication that the coliving housing model is one of the most sustainable on the market.
Coliving Before COVID
Prior to the COVID-19 crisis, coliving provided a 30% industry average discount to gross housing costs for renters on a per lease basis while increasing NOI for asset owners by an industry average of 15% through higher densities. While virtually all rental sectors have seen a decline in conventional Class A urban asset rents, coliving assets have continued to maintain a 23.2% rent per square foot premium over the average of Class A Studio rents per square foot in comparable markets during the third quarter of 2020. There are several indicators that point to a continued demand from the coliving target demographic despite the ongoing crisis.
Rents
From March 2020 to August 2020, Class A studio rentals fell 11.7% per square foot. In comparable markets, coliving effect rents only fell 9.4%, demonstrating that while both coliving and conventional multifamily rentals have been affected by both the economic landscape and the reductions in face value of rents, the overall net effect has been less for coliving assets generally. Coliving has maintained it’s per square foot premium over studios during the pandemic, given that coliving rents continue to offer an average 20%+ discount in housing costs per lease compared to the competing studio product.
Occupancy
Pre COVID-19, coliving boasted some of the highest occupancies among stabilized multifamily assets, ranging from 96% - 99% depending on the operator. Since July, “occupancies have fallen to 91.2% for assets in Los Angeles, Washington, DC, Seattle, San Francisco, and Miami. However, these rates outperform stabilized downtown Class A multifamily in the same markets, which fell from 94.4% in Quarter 4 2019 to 90.0% in Quarter 3 2020.” The largest immediate drop off in occupancy is likely due to the pandemic's initial economic shocks, which affected lifestyle choices for middle-income coliving residents who worked in vulnerable industries.
Offering flexible lease terms has been one of the ways that coliving operators have sustained the demand for beds, which before the pandemic were 30 to 40 times higher than the number of beds available. In the recovery phase from COVID-19, Cushman & Wakefield estimate that investors can expect a rebound in occupancy rates in 2021. As major cities reopen, the workforce returns to the office in some capacity, and the coliving target demographic look to return to life ‘as normal’, the pricing, amenities, and location of coliving can reduce competition against conventional multifamily competitors and provide a sustainable model for growth.
Rent Collections
Rent collections among coliving assets have consistently been in-line with or higher than conventional multifamily. Whereas delinquencies for traditional housing have ranged from 4.5% to 5.2%, and Class A multifamily assets have declined at 8.4%, coliving assets have stayed below 4%. This successful performance is likely due to coliving’s middle-income, college-educated target demographic, with an average age of 29 and an income of $71,500. “Relative to conventional multifamily residents, an even higher percentage of coliving residents completed their payments within the first week of the month throughout the COVID-19 pandemic.” Going forward into 2021 and beyond, investors should expect rent collections to remain strong, particularly as the labour market continues to recover, albeit gradually. While coliving residents are generally less dependent on stimulus programs than the overall renter population, payment rates should benefit the margin if the US Congress passes further stimulus.
The Future of Coliving
Several coliving operators plan to implement more amenities towards coworking spaces or in-unit workspaces to respond to the overwhelming shift to remote work. Although working from home has seen a surge in popularity during COVID-19, some data suggests that residents of coliving properties will likely continue to need a traditional office to some degree. This is why the location of coliving housing, often near key office locations and employment opportunities, is a large asset. The appeal of coliving assets will benefit greatly once people are able to enjoy the cultural amenities that large population centers promote. Affordability will also play a huge factor in both urban coliving and in the suburbs of major cities. Cushman & Wakefield’s view is that “while coliving is likely to remain a relatively small percentage of the overall rental market, the considerable opportunity for growth remains. Additionally, as with coworking, we are likely to see some versions of coliving becoming integrated into conventional concepts.”.
Cushman & Wakefield, along with us here at HOME believe that the road post-pandemic is still very much open for coliving to continue to grow into an established part of the “multifamily market ecosystem and one that has a place in diversified portfolios.”.
