Coliving, in the times of Covid
The pandemic which has wreaked havoc on the real estate industry, has not sparred the coliving industry
The number of times we have collectively used words like ‘Unprecedented’ or phrases like ‘These are tough times’ in 2020 is, ironically, unprecedented :)
If you take all industries and squarely put them under a ‘winner’ and ‘loser’ bucket after Covid-19, real estate falls on the ‘loser’ bucket.
There was a surge of businesses which wrapped a layer of services and technology on top of real estate, aptly named ‘Real estate as a service’ companies that included coliving, student housing, coworking, etc. over the past 10 years. Unfortunately, all of these businesses have faced significant challenges as well .
Coliving, unfortunately, was hit pretty hard.
TheHouseMonk launched the Global Coliving Report - 2020 last week. It is a 30-page document filled with insights that quantify the impact of the pandemic on the coliving sector. The team worked really hard to collate this data, and you should definitely download it and read it (if you haven’t already).
Why did the industry have such challenges?
Coliving spaces witnessed a low occupancy in their facilities. While the reasons for this varies widely from one geography to another, there were 3 main trends we noticed across the globe -
Restriction on travel: This was one the biggest hinderances for the growth of the coliving sector in 2020, as travel bans across the world made it difficult for people to migrate to new cities/countries
Extended work from home: Coliving has largely been an urban phenomenon, with people using these facilities as an urban nest from which they commuted to work. With many industries allowing employees to work remotely, people have moved away from cities (at least temporarily)
Moving back in with their parents: Especially in emerging economies like India, either in a bid to save money or to simply be close to family during a pandemic, many people have moved back in with their parents in their home towns
The reduction in occupancy naturally leads to a drop in the rental prices as well. Both of these factors lead to strong challenges for operators all over the world.
Quantifying the impact
Fig1: Drops in occupancy levels within coliving spaces were significant in India and USA, and notable in Europe. SE Asia and China, which recovered quickly from the pandemic, have fared much better than other regions.
It needs to be noted that most coliving operators were operating at 90-95% occupancy levels pre-pandemic.
Fig. 1: Avg. Occupancy levels in different regions
Fig 2: Operators (And the market at large) tried to counter the occupancy drop by offering discounts on the rental prices to tenants. This resulted in dropped rental prices in most parts of the world. In line with the earlier trend, India and USA were the regions which had the most pronounced drops in rental rates.
Fig. 2: Avg. Occupancy levels in different regions
The full report has more key insights and data points like this as well. You should read it for more in-depth coverage of this.
2 Chinese coliving companies (Danke and Qingke) which IPOed late in 2019 and early 2020, have had a torrid run at the stock markets losing 75% and 90% of the market value during the year so far.
Silver lining amongst dark clouds
It was not all bad news for operators. Very early into the pandemic, most operators convinced their landlords to move onto revenue sharing agreements (or management contracts) to offset their rental liability and risk. While most landlords are expecting to go back to a ‘master lease’ or ‘fixed rental scheme’ format post the pandemic, this is a great opportunity for operators to hold on to this business model even in the long term, as it would allow them to de-risk and scale aggressively.
There also seems to be good inbound interest for coliving spaces that have a small coworking set up attached to the premises. Many facilities which had a few seats + meeting rooms set up in the ground floor or terrace, seem to be getting strong demand (given the circumstances) as tenants want the option to work from their home, but not their beds!
What does the future hold?
That’s anybody’s guess, and I won’t stick my neck out on this :)
In a survey conducted as a part of the Global Coliving Report - 2020, more than 80% of coliving operators speculate that full recovery is atleast 6-12 months away, if not more.
Consolidation also seems inevitable at this point, as many smaller coliving spaces have run out of money (or are getting there), and would need to merge with larger entities to address cashflow problems, and survive.
Having said this, the point of view that seems to emerging is that people would definitely come back to cities, but stepping into an office might be infrequent. This makes sense - Especially in emerging economies where schools, hospitals and other important infrastructure are primarily based around cities and hubs. This would definitely aid the coliving industry.
With many operators slowly getting back towards pre-Covid levels of occupancy, and a vaccine on the horizon, there is reason to be hopeful for the industry as a whole.
…And with that, it’s a wrap for the RealestateXTechnology(RXT) newsletter for 2020. In total, I have written 32 article this year (Read them all), and have about 1,500 subscribers! It’s a crazy achievement and one that I’m very proud of :)
I think better when I write, so many of these articles were simply quick notes I jotted down and emailed to myself to keep a record. A friend suggested I share it with the wider world as it might benefit everyone. It was probably one of the best pieces of advice I have received!
I will spend the next 3 weeks thinking through how I can keep RXT alive and possibly bring new forms of content to this audience! If you have any ideas, do share them with me and I would love to hear from you.
Hope you have a great Christmas and a Happy New Year! See you all in 2021!
Your articles have been insightful and shed a lot of light on the industry, especially the impact of the global pandemic. It has been intriguing to draw parallels between industries. Can't wait to read more in 2021!