Co-living: a new formula for living
Co-living: una nuova formula di vivere

The housing market has experienced in recent years a strong acceleration in the specialisation and diversification of supply, which has led to the emergence of many new housing formulas.

These new forms have satisfied the ever-growing, and different, needs for living, including the need for sociability, which, asserting itself especially among younger households, has given rise to a new model of residence: co-living.

Co-living facilities

Co-living facilities originate in the context of the sharing economy, influenced by the values of collaboration and the sharing of living spaces and experiences. They originate from co-working experiences, from which they were inspired and from which they have subsequently developed, filling not only the need to share services, but all aspects of social life.

In this it can be defined that co-living is the new evolution of co-working, the latter having originated some 20 years ago in Germany where the concept of disseminating and encouraging access to services, rather than owning them, was established.

Today, a co-living facility is basically a residential building in which residents have at their disposal a private bedroom in a furnished flat, with shared common areas both within the flat itself, such as the kitchen and living room, and in the building as a whole, on the various floors and on the ground floor, such as areas for communal activities, co-working, small libraries and workshops, areas for children, etc.

Particularly appreciated by the Millennial generation, i.e. the so-called ‘young adults’ between 25 and 40 years of age, co-working is in fact chosen above all for the possibility of greater flexibility, the search for a different balance between work and leisure activities (the so-called work-life balance) and, especially, a renewed desire for community, openness and exchange; it is also chosen for the possibility given to those categories of individuals looking for an economically optimised housing solution to find accommodation in large cities where prices are normally not very affordable.

Today, co-living is still an undeveloped and relatively new market. The first realities to enter this new real estate market were Common and Pure House, two American start-ups established at the end of 2015, and more recently also WeWork, which opened its WeLive division.

“What is driving co-living and the shared living space movement is the desire of young professionals to live in a community with other creatives and innovators, in a world of sharing and collaboration, without boundaries of space and time”. Explains Ryan Fix, founder of Pure House co-living in New York.

A number of players are emerging in Italy, including DoveVivo, a company dedicated to co-living that has experienced exponential growth since its inception.

Investment in co-living facilities

Co-living is a form of investment that is part of the broader residential property market, specifically that available for rent.

This market, historically characterised by low and therefore unattractive rates of return, has always been unattractive to investors who are now, by contrast, identifying co-living as an attractive segment for the returns it can offer.

In fact, if historically in Italy residential housing has been characterised by gross returns of around 4%, co-living, if professionally managed by specialised operators able to satisfy, if not anticipate, demand and its needs, can easily offer returns of around 5.5% / 6% gross, thus intercepting all those investors who, having considerable capital to invest, can thus deploy it in an asset class that satisfies both the two investment criteria of maximising yield and minimising risk, supported by the growth prospects of a market that is still in an ’embryonic’ phase, so to speak.

The business model is simple: an investor, whether private or professional/institutional, invests in the purchase and eventual redevelopment of a property that is, or lends itself to being redeveloped, residential; then, through a management agreement, it gives it to a professional operator who manages it, and pays the owner a periodic ‘coupon’.

The minimum investment varies from very small sums within the reach of a private investor (between 200 and 400,000 euros, needed to purchase a flat to give to the operator), up to several million euros for a professional investor, including institutional investors, who are looking to purchase entire buildings.

The criteria for investing in co-living facilities

Co-living operators base their location choices on several criteria, not necessarily economic.

First of all, the demographic study provides a first selection criterion: the growing incidence of younger segments of the total population, the net immigration from the regional reference areas and the high proportion of single-person households are demographic elements that can measure and quantify the potential demand for co-working accommodation.

On the other hand, the average rent in the city centre and suburbs and house purchase prices are purely economic indicators of the propensity to prefer shared and more affordable solutions for lower income groups, and thus measure the maximum willingness to pay a rent in a co-working facility instead of buying or renting traditionally.

From an investor’s point of view, the rates of return in a specific geographical area are the yardstick that guides their investment choice. For example, in Milan, rates of return range from a minimum of 3.8% when investing in the city centre to 5.6% in the suburbs; in Rome, returns range from 3.7% in the centre to 5.3% in the suburbs.

Finally, from a purely real estate point of view, the availability of buildings that easily lend themselves to being converted into co-living units is an essential criterion. In this regard, in addition to flat solutions in condominium contexts, which are more within the reach of private investors, the minimum size of a building that is attractive for a professional investor and economically efficient for the manager is around 3,000 square metres, where approximately 100 beds can be obtained.