Co-living is an interesting new style of housing to ponder. On one hand, if people want to live in an upscale urban apartment building, having three roommates or so might be the only affordable way to make that work. On the other, what would happen during a pandemic? Would people want to get out of the co-living space to better social distance? Would they lose their jobs from lockdown policies and not be able to pay rent? Oh wait: That did happen.
One needs only to look at the bankruptcy of Quarters in January 2021 to see the writing on the wall. Or do they?
The Quarters story
German co-living company Quarters, after raising $300 million in 2019, expanded to the United States with eight buildings in four locations: New York City, Washington, D.C., Philadelphia, and Chicago. But then 2020 hit.
At the start of the pandemic, executives at Quarters were cautious but optimistic about its business model. They believed the onslaught of tenants breaking their leases, combined with slowed demand from new tenants, was just a short-term thing, nothing to really worry about. After all, the lockdowns and quarantines were supposed to last for only two weeks.
Quarters slowed its expansion plans during this time and gave business survival a good shot with daily cleanings, closing common amenity space, and offering daily virtual activities for tenants. The people at Quarters were confident the public would want to once again embrace the co-living model at some point in the near future.
But Quarters execs predicted wrong. In just nine months, their optimism and hard work were destroyed as the company filed Chapter 7 bankruptcy and pulled out of the U.S. market completely -- breaking their leases to do so. One landlord, Cedar Holdings of Brooklyn, is suing Quarters for $8 million for breach of lease.
Maybe Americans just aren't ready
Co-living is a European concept, originating in 1960s Denmark. Its hallmark is group living where household residents share amenities, such as living rooms and kitchens. No one owns property; residents pay a landlord.
That model doesn't jibe well with the American dream of homeownership -- of having a place of one's own, a place where there's freedom and flexibility to do as you wish, a place you control.
Co-living isn't that. Co-living offers residents a space that gives, at best, only the illusion of control, such as voting rights on house decisions, not true control, as what ownership provides.
The future of co-living is up in the air
Although Quarters bailed out of the U.S., other co-living companies are still here. They're all based in expensive urban areas and mostly attract young singles, although in Europe, co-living spaces also target specific demographic groups, such as women over 50.
One venture capitalist, Jason Stoffer, told Crunchbase News he believes co-living will rebound, but with a caveat: The business model of start-ups relying on venture capital and then signing master leases, as what Quarters' business model in the U.S. was, probably won't work moving forward. There would need to be another sort of arrangement, one with a more predictable revenue stream.
The Millionacres bottom line
The co-living industry in the United States is still new. Watch for the following trends to materialize (or not):
- Increased urbanization
- Increasing rent prices
- Decreased homebuying
- Increased Euro lifestyle
- Government policies, such as rent control and zoning restrictions
Whichever way these trends go will help predict whether co-living will become more popular here in the U.S.