Evolution in residential tenancies

The demographic, social and economic change that the Spanish and European population has been experiencing in recent years lead to a different model of life, which in its’ turn affects the real estate market.

Very briefly, at a social and demographic level people are getting married and having kids later in their lives, and geographical mobility has become more relevant for a lot of careers.   Globalization is a reality making staying connected with close and far a priority.

On an economic level, real estate included, the trend of higher prices leading to gentrification has become a reality. Purchase prices have risen more than 20% in the main Spanish cities, while rental prices have risen in a constant (and alarming) way to historical highs, going well beyond the recommended threshold of 30% of the income of the household, therefore stimulating the shift towards becoming a homeowner (with interesting financing available). 

However, there are two major challenges to carry out this process: firstly, salaries have not matched the rise in the market, which provokes a mismatch between income & savings and the desired homes; and secondly, the newer generations approach to life. The “day-by-day” life. The flexibility need. Interim life and Temporality.

These features have made the rental market to shift from the most feasible solution to housing to one of the least attractive ones, mainly in bigger cities. Furthermore, current prices make the percentage of people sharing apartments with others -not family or close friends– to  increase.

These circumstances have led to new residence formulas such as co-living, a business model that still has little presence in Spain compared to the existing potential.

The co-living was  born as a conceptual idea in which professionals or students (mainly postgraduate at the outstart), share a house and an environment where they can exchange work and life experiences for a period of time, a kind of co-working guided to an all-in-one, promoting networking, community life and housing in a single cool and inspiring environment.

Co-living offers attractive benefits to the tenant over a conventional rental, providing:

  1. Greater ease of use, since the tenant is free from the usual arrangements of having their own home, because the service normally includes suplies, cleaning, furniture, etc.
  2. Flexibility, as being a rotational product, avoids requirements in terms of durations and permanence.
  3. Community, where he will interact with other professionals of similar interests or profiles, while keeping your private space; a free new contact network.

It should also be noted that this layout is also  an example of space efficiency. While the distribution of three studios or apartments with capacity 1 or 2 people on one floor would hold a footprint of 270 square meters, to accommodate the same number of people under the co-living model, while still providing some well designed common areas would require almost half of the surface.

For the investor, this means a better return on land, and, having a good asset and capital management.

Co-living is a solution that simplifies access to the real estate market by tenants and that will surely bring savings in comparison to a studio rental of equivalent qualities and space, while offering juicy returns to the investor. My doubts are, “is there housing after co-living?” In cities such as Madrid, with a high presence of rental products operated by individuals, will they react to this market change?