Co-living: Will sophisticated flat sharing models be the future for young urbanites?

Co-living still represents a tiny segment of the German housing market. But it is growing fast.

January 21, 2020

Can co-living help ease the tight housing situation in urban centres? Debate has swirled around this topic in Germany in recent months, but it is a long-established fact that apartments are hard to come by in economically successful German cities.

That can make life hard, especially for well-educated professionals. They frequently change jobs and locations at short notice and are also are expected to be flexible and mobile. Many are drawn to city life for its own rewards, too – including career opportunities in innovative industries. To take advantage of these opportunities, though, they need a place to live. Quickly being able to move into a new place, without excessive logistical effort is a decisive location benefit not only for the much-vaunted digital nomads.

Quick housing solution for flexible workers

Unfortunately, these requirements are far from the current reality in big cities where it can take months to find an apartment. Luckily, an alternative is emerging in German cities that may remind many of their college or apprentice days: co-living. Residents move into their own efficiently designed, compact room, which is often fully furnished, but share kitchens, utility rooms and community areas with others. Quite like a dormitory, in other words – but much better appointed.

“Co-living cannot solve our big housing problems. However, it can provide an alternative to the tight traditional housing market for people starting a new job in a different city,” explains Dr Konstantin Kortmann, JLL Head of Residential Investment. “Co-living is for more than just young professionals, though; it is a good option for people who will be staying in a new city only briefly for work reasons, perhaps on a temporary posting.” For both groups, co-living provides not only instant access to move-in-ready housing but also the opportunity to quickly meet people in a new city thanks to the social aspect of the community living areas.

Co-living growing quickly

Co-living services are still quite new. In Europe, the number of beds (a yardstick that established itself due to similarities with the hotel industry) in mid-2019 amounted to around 23,000, either already in use or under development. This is small compared to the overall housing market, but the segment is growing at a breathtaking pace. 60 percent of these projects have emerged in the past two years alone, as the JLL European Coliving Index shows. The segment is clearly expanding rapidly, led by London and Amsterdam. However, co-living has also picked up considerably in Berlin and Hamburg, which now account for around 5 percent of European co-living offerings and developments.

Demographics driving new housing models

And this may be just the beginning. Demographic changes are bringing forth these new housing models. Urban dwellers already account for a large slice of the European population, but their share will grow further to 81 percent by 2050. Many will be under-30s with jobs that require them to find flexible, affordable living space. In short, co-living is probably still far from peaking.

Investing in co-living

“Co-living presents housing investors with an attractive opportunity to add new risk-return profiles to their portfolios. The economic argument for co-living is that it combines high square meter rents with moderate absolute rents and allows rapid rent adjustments due to the relatively short leases – albeit at the cost of a generally higher vacancy risk,” explains Kortmann.

The success of co-living will largely depend on how well it is tailored to each property. And on housing trends in cities in general. In the end, long-run demand will determine the model’s economic viability. Given the ongoing trend toward urbanization and the high likelihood of persistent housing scarcity, it seems likely that demand will be stable.