Co-living grows in European real estate experts’ hearts

Earlier this month, I proudly attended MIPIM Proptech Europe 2019 and hosted a fun co-living masterclass with my esteemed colleagues from the brands Sharies, Quartus’ Livinghomes, Node, Outsite, as well as proptech rising stars Salto Systems and Colivme. Colivme is actually a name to remember : the startup (I serve as a strategic advisor for them) has just graduated from their initial incubation phase with BNP Paribas Real Estate, and is about to become a vital component of the co-living value chain as co-living location/co-liver relationship managers.

I came into this emerging industry of co-living in 2014–2015 when I was looking for a home in New York City. After a couple years in real estate development, I seized the opportunity to co-found and run Co-Liv, the international professional association and network for co-living. Three magical years bootstrapping for this non-profit led me to the real estate investor and property owner Keys Asset Management, which struck me as an exceptionally agile player in its sector. Today, I am fortunate to serve as Keys Asset Management’s Director of Research and Development, helping to grow the company’s curiosity for all city-related things and thus its creativity. Co-living is naturally a big spot on our radar and we strive to consolidate knowledge about his new asset class from an investment perspective : what geographies ? what yields ? which exits ? etc. MIPIM Proptech was a unique chance for us to bring together the fundamental user-driven product design approach of co-living, with down-to-earth investors’ challenges and questions. So we invited the renowned proptech strategist Jess Williamson to moderate the conversation.

So, yes, we do pay a very close look to the evolution of co-living in Europe. We see co-living as an exciting new asset class because it fills a gap in the existing housing and lodging markets by serving a population that was completely left out of the formal housing market till now. As a matter of fact, before co-living took off, the residential real estate industry hadn’t really challenged the way it built housing units in 50 years, even though our lifestyles had been evolving : less and less linear family lives, increased mobility in our jobs, and an unprecedented affordability crisis. Co-living’s offering is ground-breaking because for the first time, it addresses residents’ need for access to :

decently-priced quality housing – co-living lowers the barrier to entry (no guarantor needed for example), and it is more affordable overall (i.e. on a “cost of living” basis) than traditional housing;

flexible housing – co-living allows to come and go more freely than when bound by a traditional lease;

and human interactions in large urban centers – co-living provides a built-in support system without any requirement to commit to the community.

Those residents often relied on the black market to find a place to live before they found co-living options that suited their “not-so-uncommon” situations : they are young professionals, mobile professionals working in a given city for six months at a time, digital nomads, divorcees, widowers, empty nesters, etc.

Beyond the understanding of underlying demographic changes, co-living entrepreneurs have brought “product design” back to the real estate table. And finally, investors and developers together are invited to think about the experience they’re creating for their end-users. The product is the central component of a co-living concept : not only it defines who you are to your users – it’s your value proposition – but it also drives your roll-out plan, predetermines your business model & marketing funnel strategy, and lifts or reveals regulatory barrier. We, investors, are pretty agnostic when it comes to building in “the right” tenant-oriented features or services. There is no magic bullet; different brands are going to value different things. But, at Keys AM, we believe in one common truth : great user experience, i.e. experience that drives value for tenants, also drives value for the investor in the long run.

Co-living blends the boundaries between housing and lodging, and we find that very exciting. Additionally, for us, it is synonymous with positive impact – as long as the co-living brand offers better quality of life for its users – and the creation of a new asset class that is (i) potentially more profitable than housing, (ii) easier to manage too since there’s a fully-staffed operator in place, and (iii) learns from the hotel industry to provide high-quality, high-margins service packages to end-users.

Demand projections are strong and rely on deeply enrooted societal changes bringing confidence for continued, sustainable demand in the long-run. That’s why, we believe this new housing typology is going to spread out more widely in the near future. However, we are forced to reckon that things move slowly in France and Southern Europe compared to the US, UK and Asia. Co-living projects do present sexy returns for a housing typology, and stable, low-risk returns for a lodging typology. But, they continue to suffer from a high risk perception due to the lack of track-record and exit strategies: who’s going to buy co-living assets in 6–8 years from today, and at what rate?

To conclude, a few years down the line, I hope that investors will better understand the value of shared living concepts for both their financial and ESG performance. I also hope that future co-living schemes manage to ensure diversity in their communities, to avoid the ghetto trap, or Le Corbusier utopia. That diversity should be

generational – even though nobody pretends that everyone should want to co-live, so many people could find value in co-living all the way to seniors and families, starting with single-parent families.

and economic – affordable co-living concepts such as Starcity have difficulties scaling in Europe because faced with a lack of flexibility in local regulations and forced to develop on expensive land.

Keys AM’s R&D team is exploring, conceptually, the feasibility of a low-income co-living model, which would function without an operator per se, but would rely on a more participatory model. Next step is to include ownership options to help households gain in financial stability !