The mid-term rental market (3 to 12 months lease) in large cosmopolitan areas such as New York City, San Francisco or London sucks. There are tremendous opportunities to those who successfully simplify the process by making it as seamless as booking an Airbnb or buying a plane ticket on Kayak.com. This article advocates in favor of simplifying the process of renting an apartment by lowering the barriers to access it and making it more affordable and flexible for the tenants.
There are many solutions aiming to ease the pain of renting an apartment by making it a seamless process as renting an Airbnb or obtaining a new credit card. Currently, customers are using Craiglist, Facebook groups, a group of new startups offering month to month subleases or apartments, co-living spaces, micro-apartments and even Airbnb are currently solving the pain.
However, I feel particularly attracted to two kinds of solutions. First, the ones that aim to solve the problem from a real estate perspective by building a co-living space or creating furnish month to month micro-apartments. Second, the ones that are developing platforms that connect landlords and tenants in a seamless and more transparent way. This article will discuss the kind of solutions that solve the problem from a real estate perspective.
The concept of shared living spaces is far from a revelation. Collegiate institutions in the United States have been cramping its students in dorms for at least a century, and Gandhi believed so strongly in the power of the ashram that he thought it was the only viable way to maintain a harmonious Indian subcontinent. Co-living as an industry seeking to ride the wave of the rapidly developing sharing economy is a relatively new phenomenon. There is a tremendous market opportunity to those who successfully simplify the process of renting an apartment in a city by lowering the barriers to access it, making it more affordable and providing flexibility to the tenants. Co-living spaces, micro-apartments and furnished month to month rentals are starting to ease this pain.
The trend is supported by the fact that the number of 18 to 35 year-olds living as roommates had almost doubled in the last 30 years as The Guardian shows:
The co-living industry seeks to appeal to the millennial population by building a community environment that empowers the people living in it. Co-living spaces, which are dorms for young adults, are disrupting rental markets by bringing affordability and flexibility in a community driven environment. Co-living spaces seek to attract students, young professionals, international tenants studying or working abroad, and other millennials seeking shelter in cosmopolitan areas. There is a whole industry in NYC already succeeding and led by WeLive, Common and Ollie. The high barriers to entry the market have prevented an earlier disruption and are proving to be a great competitive advantage for the current market players.
There is a great opportunity to build affordable living spaces at great downtown locations in cities that have become extremely expensive. I can only speak for the markets that I've personally experienced, which are NY, SFO and London. In those markets, I see a tremendous runway ahead for those who can successfully build living spaces with great looks and at a below than market price rent while enabling people to connect with like-minded individuals.
The most important is to make the rental process a seamless experience like renting an Airbnb or buying a plane ticket because above all it is clear that moving to NYC, SFO or London currently sucks.
This is how I see the problem being solved in NYC:
Making it a lot cheaper. Renting an apartment in NYC is very, very expensive. And requires a tremendous out of the pocket expense because you need to pay brokers fee, security deposit, first and last month rent and furnish the place. If you’ve been through it, you know what I mean: it sucks. Subleases have been around for a long time and are currently the closest way this problem is being solved but they are not the same. It needs to be located in a good downtown location, either close to a transit hub or in a trendy neighborhood (i.e.: Lower East Side) and must look and feel good. No need for a guarantor or proof of income, no need to pay the whole year upfront for non-US residents without guarantors. No need for a social security number to set up electricity (ConEdison), no hustle for setting up the internet connection, no need to purchase and assemble furniture, thus reducing the expenditure and giving the tenant the flexibility to move to a new place. Book an apartment just with your credit card, making it a seamless experience like renting an Airbnb or buying a plane ticket online. Providing month to month commitments that enable people to have an alternative to one-year leases and giving them with the flexibility and empowerment to move around the world. In a community driven environment, that empowers people to meet like-minded individuals and provides them with a sense of belonging.
Lastly, as we see more and more players entering the market I must re-emphasize that I do believe that it is still a good time to enter it in NYC (even the current RE market prices) because it is not easy to get supply into the market (i.e. financing, permits, construction). I envision a future where co-living spaces make up a major share of the residential buildings and I currently see supply growing at a much slower rate than the market demand for them.