Coliving is a new way of living that focuses on community. A hybrid between a traditional residential product (accommodation), a student residence (community) and a hotel (services). From an investment point of view, an asset built for coliving maximises the return €/m2 by optimising space. In this type of operational asset, what gives value to the property is more the business generated inside than the traditional €/m2 real estate.
Is this concept new or does it already exist in other countries?
The concept comes from the United States and Asia and is being implemented in Europe through the United Kingdom, Holland and Germany. In Spain it has been represented for many more years than it seems, but it was born dedicated to digital nomads and on the coast or on the islands. Right now the product is shifting towards young professionals or corporate clients who see housing as a service, and an important added value to the community approach that these spaces have.
What needs of the population do you respond to?
It responds to a need for temporary accommodation considered to be medium-term (3-24 months) in which the renter prefers a “plug and play” space. In other words, that is activated and has all the services included in the rent.
Why is this segment gaining momentum in Spain?
From the user’s point of view, more and more people are renting rather than buying. This trend in total percentage has been around 20% in Spain for many years, but in young people between 20 and 40 years of age it has risen to almost 40% in the last 10 years. This, evidently, responds to an inability to buy a home, but also to the global mega-trend of seeing housing as a service and not so much as an investment.
From an investment point of view, given the experience we already have in Spain, it has been demonstrated that with a good design this product offers high occupancy levels at affordable rates. The NOI generated is higher, with the same capitalisation yield, which is, in short, a way of obtaining a return somewhat higher than traditional products.
At the height of the pandemic, occupancy rates fell and rents were renegotiated, both between end tenants and between managers and landlords. Even so, there have been no major “dramas” in assets managed by operationally efficient and entrepreneurially sound operators. It is a sector that still has a small footprint in the Spanish market and is based on resilient fundamentals, so it has not suffered as much as other more institutionalised sectors.
What measures are being taken in these areas
As in many other sectors, there is an increase in OPEX due to extra cleaning costs (both in terms of hours and specific products). One very positive thing that a coliving building has to connect better with the needs of the coliver is technology. And indirectly it is also serving to provide security and information about the disinfection of spaces; for example, with controls of common areas by shifts and small groups or scheduling of cleaning hours. This can be checked in real time on some assets through the building management application, which is used on a day-to-day basis by both operators and end tenants. Here it should be noted that this product has not had to be transformed, as coliving is born digital.
How this segment is currently operating
Before March 2020, there was even a waiting list of several months in all the colivings operated by a good manager, so full recovery will not be long in coming. We are currently on the road to recovery and in some assets there is even more demand than usual, as the current situation means that tenants are looking for more temporary, fully serviced accommodation. Operators have also experienced a change in the type of demand, from 80% international to 80% national.
What are your forecasts for the future given the current situation?
The pandemic has been a great catalyst for the trends that were to develop over the next few years. At CBRE we believe that during 2021 more international operators will arrive in our country and thousands of beds will be developed, which will respond to a niche demand that has been waiting for a long time. We also believe that there will be specialised coliving, as has happened with the coworking market: divorcees, entrepreneurs, MBA students, young professionals, digital nomads, etc. Here, investment will range from the most opportunistic investors to the more conservative wealth investors. The model has a long way to go in Spain and this is striking compared to more consolidated markets with lower profitability.
Javier Caro – Director Coliving CBRE Spain
https://www.cbre.es/es-es/research-and-reports/insights/articulos/coliving-multifamily-coworking
