The idea of co-living seems counterintuitive to the nature of the airborne COVID-19 pandemic. But after a year of self-isolation, people are craving human connection, even if that means living with strangers.
There's been a surge in co-living living options facilitated by companies like Common, Bungalow, and Roomr, all of which provide pre furnished rentals with flexible lease timelines. In addition to the appeal of being around others, short-term flexibility has become attractive to consumers, given the unpredictability of the pandemic and its economic impact. These developments are part of a bigger trend. Before COVID hit, Bungalow, one of the biggest players in the space, secured $47 million in a funding round, bringing its value to $68 million.
During the pandemic, co-living companies fared better than conventional counterparts. According to a November 2020 report from Cushman & Wakefield, co-living properties performed a staggering 23% higher than conventional properties in Q3 2020. Meanwhile, the real estate market struggled. Rent prices are up as much as 61% compared to last year in several New York City neighborhoods, ranging from the most sought-after like NoHo and Chelsea to those further away from Manhattan like Brighton Beach. Data gathered by Thinknum Alternative Data shows that rental prices across 11 New York City neighborhoods owned by major rental property REITs have crept up by 21% on average compared to last year. But a rent increase is imminent, as vaccines roll out across the country.
All this raises the question, how did the co-living niche of the real estate industry pull this off? And does it have staying power? Eric Rodrigez, VP of Operations at Common, one of the leading companies in the space, spoke about why the co-living industry was well positioned to weather the pandemic and how Common will continue to thrive.
Business of Business: Can you tell me about Common's current customer demand and how it shifted during the pandemic?
Eric Rodrigez: We are seeing strong demand and we saw strong demand throughout the pandemic. Our population changed throughout the pandemic. Common typically saw a high amount of international folks within our properties that changed during the pandemic because people weren't traveling as much. We pivoted to hospital workers as individuals who would be in a city for a short period of time with housing that was really confident. One of the biggest things about Common is the flexibility that we provide individuals.
You move into a property on the co-living side that is fully furnished and you have utilities included. You have shared goods included, household essentials and paper towels. You really just show up with your suitcase. Really, during the pandemic people needed that level of flexibility because they didn’t know where they were going to be in a month or two months. We saw high demand for that kind of living space. We have our connect app where individuals are able to connect with each other. Think of it as a Facebook, in that you are able to connect with other residents within the building regardless of whether they are co-living tenants or they are traditional tenants. We have a sense of strong community that we build through the application and then we try to lean into technology wherever possible.
BB: Can you give a breakdown of the demand that you're seeing for the different kinds of properties?
ER: We see a lot of demand in big cities like New York [for] co-living. In cities like LA and Fort Lauderdale, the bulk of our demand is [for our] traditional [properties]. We're seeing healthy demand on both sides. Last month, we had upwards of 30,000 people inquire to live at Common properties. We’re definitely seeing a strong trend there.
BB: How many of them actually pull the trigger?
ER: On a monthly basis, we have about 300 or 250 people move into our properties.
BB: What percentage of your properties are at capacity?
ER: Our properties are anywhere from the 93 to 95% occupied, which is on the strong side [considering] where occupancy is in the real estate market today.
BB: Is that higher or lower than what you normally would see?
ER: Slightly lower. We typically are in the 97% to 98% occupancy range. Obviously the pandemic has changed dynamics in the real estate industry pretty dramatically, but we are finding our way back to that 97-98% range. The last few months have actually been fairly strong for us, which is abnormal in the real estate space. Usually during the winter you see occupancy dip. We've actually had a really strong January, February, March and April so far.
What's been interesting that over the last year, everything that we thought about seasonality has been thrown out the window. Given that we operate in 12 different cities, we've seen different dynamics in different cities and we have to react to them. LA, for example, had a pretty rough fall, so we saw a slight decrease in momentum there. Typically, as I mentioned before, during the winter time you see a slowdown. Given that from January to today, things have started to improve in the United States specifically, we are seeing a lot of momentum. People are starting to travel and go back to their routines. Offices are starting to open in places like NYC, so we're seeing demand from interns that are going to come during the summer. Things are starting to return to normal. I would say that the real estate market in general is starting to see that recovery.
"During the pandemic, people needed that level of flexibility because they didn’t know where they were going to be in a month or two months."
BB: I want to go back to your comment earlier about co-living and Common faring better than the real estate markets. Can you elaborate on that?
ER: If you look at the end of 2019, I believe we were at 2,000 units, and during the pandemic we would go to 5,000 units. We’ve actually grown really quickly over the pandemic, and our brand is becoming more recognizable. During the last year, we've grown a lot in terms of increasing our brand awareness. Ppeople are thinking or starting to think about Common when they're looking to live our new property. That interest started to increase the number of leads that we get, which has gone from 20,000 at the beginning of last year to 30,000 a month. We're talking about people who have been cooped up in their homes or living by themselves, they want their social contact, and they want to be able to have a network that they can resort to and have conversations with. I feel like our members have benefited from that.
BB: Can you speak to Common's role within that ecosystem?
ER: Community is a big aspect to Common, we see that when people build a connection with a property, they're more likely to stay at the property or more likely to renew, which is a winning proposition for everyone. It is a winning proposition for the owners of the buildings that we operate, but also the people that live in those buildings. During the beginning of the pandemic, we had to quickly pivot to go from an in-person community network to a virtual one, and what we've been able to do is have things like virtual yoga or virtual happy hours.
BB: There's a growing trend of co-living businesses. Can you speak to the interest in this niche within the real estate industry?
ER: Businesses in general are moving towards becoming more experimental in terms of how they're thinking about the experiences they provide to the people that engage with them. Even restaurants, for example, are providing cooks at home and experiences so they could continue to engage people.
What we're seeing on the real estate side is people don't only want a place to live, but they also want a place where they can engage with other individuals and form that community, not only network for a professional perspective, but also socially have a group of people that they can turn to, especially they're moving to a city for the first time. I think that very proposition, which we have been working with since we started in 2015, is something that's becoming a lot more prevalent in the market. People are looking for community.
BB: How is this experiential part of your industry different than what you would get in a typical apartment complex with shared spaces like gyms and pools?
ER: I think the difference in our world is that we are driving community through technology. If you're living in a big building, especially in a city like New York, you're still anonymous to your neighbors. You're not really forming those connections and you don't have any way to know who lives in the next unit. How do I form a relationship with that person? How do I network with an individual? With Common, we're community-minded. We throw events with the explicit purpose for forming those connections.
BB: What about the real estate market as a whole? What has been your advice to colleagues in other parts of the industry dealing with this market downturn?
ER: My advice in the beginning of the pandemic was leaning into technology to make sure that you're able to provide experiences, whether they be contactless or otherwise, to your tenants, so that they're able to still have a great living experience on a daily basis. As the pandemic has evolved, we’ve seen that need for that human connection, whether we virtually or in person within a small setting. I think it has a ton of value for owners of buildings, because what they're doing is creating an experience that people want to live in.