The co-living sector as an asset class has been developing in rapidly in Germany for the last three years, while at the same time adapting to embrace a number of definitions. The problems in the classical hospitality industry, with hotels devastated by the ongoing COVID pandemic, seems to have only spurred even more entrants into the market, with big names like International Campus announcing billion-euro expansion plans over the coming years. Other players, such as the younger Stride and Poha House, have also announced ambitious plans, as so-called long-stay concepts vie with the more short-stay approach of hotels.
Jan Linsin, head of research at CBRE, told REFIRE recently that, as a term, co-living is very broad because it can encompass anything from student accommodation/WGs to flats with amenities for young professionals and aspiring entrepreneurs.
‘It feeds into the same trend as co-working – it’s about building a service layer on top of the accommodation and creating communities of people who like the same things and share the same values,’ he said. ‘In that sense, co-working and co-living can co-exist successfully. What could work really well is to create co-working/co-living global networks so that someone can have access to both a co-working space and somewhere to stay within the network when they travel. I would certainly use a service like that and I think a lot of other business travellers would, too.’
Working from a home office, along with the acknowledgment that this can be a lonely experience for many, seem to be underscoring the rationale for the form of communal living and working that co-living concepts aim to support.
The megatrends driving the demand for micro-apartments across Europe are likely to survive the corona pandemic, which has seriously curtailed travel but in other respects may be further fuelling the attractiveness of the sector when some form of normality returns.
Urbanisation is a significant factor, with population increases in cities with strong economies that offer good job prospects and well-regarded universities. Both workers and students are providing extra demand for micro-apartments, while Germany is hoping that when students return to campus in large numbers, it can pick up some of the post-Brexit demand from foreign students.
International Campus, an early pioneer in Germany with its student housing concept The Fizz, plans the rollout of new co-living houses branded under the label HVNS. It plans to invest €1bn over the coming three years in developing and operating its ‘temporary living’ concepts across Germany initially, but with an eye also on Austria and the Netherlands. CEO Rainer Nonnengässer said the company was focusing on big cities like Berlin and Hamburg, but also on attractive smaller cities with university and young worker populations. “We’re looking for suitable building sites and existing properties in A- and B-cities which we can develop for Germany’s 2.9 million students”, he said.
In a number of recent interviews, Nonnengässer said that the level of occupation of the company’s student housing units was still very high, despite some vacancies due to the travel restrictions and off-campus learning environment as a result of corona. If they were 100% occupied before COVID, occupancy now is between 75% and 90%. The company currently operates 13 “The Fizz” properties, and is beefing up the branding for its HVNS brand, which is targeted more at young workers.
“I am convinced that, after the pandemic, we’re going to see a big rise in the numbers of students coming from countries that didn’t make it through the crisis as we did. Even Brexit, and Britain’s exit from the Erasmus programme will also lead to more demand for student accommodation in Germany and continental Europe. And that’s apart from domestic demand – the number of students in Germany has risen by 60% in the last 20 years, to nearly 3m students, of which about 350,000 are foreign students.”
Availability of student accommodation has failed to keep pace with this growth, he said. “In the private sector we’ve added a mere 25,000 to 30,000 beds, with about another 240,000 coming from public sector investment. So if you work it out, that’s about one bed for every 10 students. The COVID pandemic won’t have affected those figures much.”
Another new entrant is Poha House, founded by Lea Hermanns. While currently developing its first two properties, in Aachen and in Essen, scheduled for opening in Q1 of 2022, the company has ambitious plans to operate 10,000 beds by 2025, and claims it has the backing of private investor for its plans. With each location ideally offering about 200 beds, according to Hermanns, that’s obviously expansion at a very rapid clip.
Gunter Schmidt is another entrepreneur with experience of the sector, as the founder of co-living group Quarters – which he is no longer involved with - and now launching the first (in Berlin) of five new Stride co-living properties, with the other four signed and in the pipeline.
While at Quarters (or Medici Living, as it was then known), Schmidt defined his concept in a discussion with REFIRE ‘There has been a massive boom in co-working and people are now very excited about co-living on the back of that,’ he said at the time. ‘However, a lot of people jump on the bandwagon and say they’re doing co-living when really they’re just doing resi without any add-ons.
“Here, we’re about building communities. We’re like a tech and a community company because that’s where we create value. The advantage of co-living spaces like ours – which are shared apartments/WGs - is that users get to rent a room in a great, exciting location that they might not be able to afford if they had to rent a whole apartment and they also have access to an instant community. All of our apartments are furnished and in a city like Berlin, rooms typically cost around €600 a month, all bills included.”
Co-living also feeds into the trend of young people becoming increasingly reluctant to buy apartments or cars, according to Schmidt. ‘They want to live in the city centre and buy experiences,’ he said. ‘They want to have options on their doorstep, even if they don’t always take advantage of them. If you live somewhere like ‘Quarters’, you already have access to like-minded people. We actually match people to apartments depending on their shared interests. That way, there are some immediate synergies and people aren’t alone.’
Quarters had gained rapid momentum and had expanded into the USA, raising $300m in 2019 and opened eight buildings in four locations – New York City, Washington D.C., Philadelphia and Chicago, attracting investment from among others, Ralph Winter and his W5 family office. Winter was among the first investors in the sector in Germany over ten years ago with the company YOUNIQ, and with his new vehicle 777 Capital Partners along with ex-colleague Thomas Landschreiber, plans to invest several hundred million in European “innovative housing” opportunities - basically, forms of living that involve communal areas and the provision of digitally-supported common services.
Incidentally, with the arrival of COVID, Quarters’ US expansion came to an abrupt end earlier this year when it filed for insolvency with debts of up to €5m, and announced its immediate withdrawal from the market. The company is facing lawsuits from landlords for breaking their leases. But it may be that the concept of co-living was having a more difficult time in the US, with its emphasis on rugged individuality, and a less European approach to communality, sharing amenities and ceding control over house and living conditions.
The concept of co-living originated, not surprisingly, in Denmark in the 1960’s. It’s still trying to gain a foothold in the US, even though other co-living companies are still trying. But in Germany, plenty obviously believe it has a strong future.
