Investing in shared spaces: co-working and co-living spaces, pop-up retail and self-storage spaces
The economic model of collaborative consumption has been spreading worldwide since the mid-noughties. The main principle of it is that paying for temporary access to a product is more convenient than owning it. This way of thinking has led to the emergence of car sharing (short-term car rental services) in the transport sector and online shopping platforms that combine offers from various sellers (C2C).
This movement has also affected the real estate market. Co-working spaces (shared offices) appeared in the office segment; co-living spaces (micro-apartments with communal areas) have emerged in the residential property market ; there are pop-up stores and stalls in the retail property segment; whilst storage units for individual consumers have come about in the warehouse market.
This article describes the features of these properties and explains why investing in them is beneficial.
Shared offices or co-working spaces have been proliferating since the 2000s. These are facilities where employees who work remotely rent communal work stations, sharing desks or entire offices on a daily or monthly basis. In large cities, such as New York and London, work stations are leased at $300-400, desks for $600–700, and separate offices for $2,000–3,000 per month.
In addition to working areas, co-working spaces include conference and seminar rooms, gyms and cafes. Shared offices usually open in central or evolving districts next to the city centre and within walking distance of popular bars.
These properties are becoming increasingly popular: according to Deskmag, the market for co-working spaces throughout the globe grew tenfold between 2011 and 2016: with spaces available rising from 1,130 to 11,300.
Co-living spaces are serviced apartment buildings where studios or bedrooms are rented out on a daily and monthly basis. Rooms in co-living spaces lease at $1,000–2,000 per month, with studios leased at $2,000–3,000 per month on average.
In addition to bedrooms, co-living spaces include communal areas: sitting and dining rooms, libraries, gyms, places to park bicycles and terraces. These properties have all the essentials, including furniture, bed linen, towels, kitchenware, soft drink minibars, books, toiletries and even HDTVs.
Residents meet at dinnertime, watch films, relax in the garden, go to parties together, cook and go to yoga classes. Hotel-type amenities, including full-time concierge services, cleaning, tea and coffee are on offer.
Co-living spaces emerged in San Francisco in 2013 and are now opening all over the world. Well-known projects include: the Gap House in Seoul (South Korea), Old Oak in London (United Kingdom), P10 Share House LT Josai in Nagoya (Japan), Roam co-living Housing Complex in Bali (Indonesia), Salva46 Apartment in Barcelona (Spain) and WeLive in New York City (United States).
Similar formats in other segments
A phenomenon similar to co-working and co-living spaces also exists in other segments. The idea of shared retail space is catching on in the retail market, for example. This concept often comes in the form of subletting: when major retailers partially lease their facilities out to other shops. According to Entrepreneur magazine, for instance, Walmart and Target chains partially sublet their spaces to Apple stores, Sears subleases some of its spaces to clothing shop Forever 21, whilst this idea has also caught on in large supermarket chains across the UK.
The retail property market is also being conquered by pop-up retail, the use of which helps brands to launch their products, take part in events, test new ideas or gauge demand in a new area. These shops usually open for one day to three months in metropolitan cities throughout Europe and the US: in central streets with lots of footfall, in addition to inside major shopping centres. According to Storefront, an operator of such facilities, renting a pop-up store in London costs $1,000 per day, whilst in New York the average price is $1,600 per day.
Similarly to pop-up stores, other types of property exist, such as pop-up restaurants that open during particular events and seasons.
Lastly, the model of collaborative consumption has resulted in the emergence of self-storage spaces. These are small warehouses, storage units or boxes within a larger warehousing facility that are rented out on a monthly basis for clients to store their personal belongings. in the United States, these properties are usually garage-type warehouses, and in Germany they are 5,000–6,000m², five to six-storey buildings. These buildings are usually constructed on centrally located roads near residential districts. According to Life Storage, in the states of New York and New Jersey, a 5 by 5 foot self-storage space rents out for an average of $50–150 per month.
Co-working spaces are set to become more popular thanks to the growing number of remote employees who value mobility and flexibility when renting a workspace. For example, according to PeoplePerHour, by 2020, 50% of UK and US nationals will be freelancers thanks to the rise of the “gig economy”.
Co-living and self-storage spaces will grow in popularity in developed countries due to a reduction in the number of marriages and an increase in the number of single-family households. People will need less housing on average and will rent storage units to house their personal belongings instead.
Pop-up stores will also remain popular. Retail facilities are not just property anymore, they are set to become a way in which buyers experience something totally new, and facilities for pop-ups are exactly the type of real estate that serves this purpose.
Advantages of shared spaces
Communal facilities are convenient for tenants and profitable for investors.
These properties primarily attract tenants with their relatively low price. According to WeWork, the average rental cost for a co-working space in New York in 2016 amounted to $7,800 per annum, while the average for a conventional office was $10,350 per annum. According to Zillow, a studio in the Financial District of Manhattan costs $48,000 per annum on average, whereas the cheapest studio in the WeLive co-living space costs $36,000 per annum.
The owner is able to offer lower rent thanks to the low square metre per tenant ratio. at the same time, the property owner receives higher revenue per square metre for the property as a whole.
Moreover, in co-working and co-living spaces the tenants don't have to cough up large deposits, nor to sign up to long-term agreements. As such, they can move out any time. For instance, a small start-up rents a couple of desks in a co-working space. If their staff expands to several dozens of employees over a couple of months, they can quickly decide to rent a larger space. Conversely, if the business does not thrive, the start-up can reduce the number of workspaces they rent.
Meanwhile, flexible rental terms mean that the owner can raise the rent frequently and evict the non-payers easily.
How to invest
Investors can participate in businesses related to co-working, co-living, self-storage spaces and pop-up retail and in several ways:
placing funds into start-ups and earning from their business growth;
renting or constructing buildings and opening their own businesses;
For international buyers, the simplest and the most efficient way of investing in shared spaces would be to invest in co-living spaces and micro-apartments in promising locations. The threshold to enter the market is relatively low (€100,000 per unit). Managing companies take charge of the property’s maintenance and dealings with tenants. We recommend investing in properties located in districts where infrastructure is being developed and that will be popular with tenants within 10 years.
Yulia Kozhevnikova, Tranio.com
This article first appeared on Planetizen at www.planetizen.com
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