How will co-living survive the coronavirus pandemic?

The core benefits of co-living took a big hit when the coronavirus struck New York City.

Instagram-friendly common rooms and coworking spaces sat empty last spring as residents complied with strict lockdown orders. Postage-stamp bedrooms became constant quarters. Tenants who had become accustomed to regular cleaning services suddenly had to disinfect on their own.

When New Yorkers fled the city in the early months of the pandemic, co-living companies — like many other rental companies — lost tenants and income. Their model, which includes perks like helping residents find roommates and providing fully furnished units, was no match for the virus. Co-living buildings have generally charged more than traditional rental buildings in exchange for shared amenities and a dormlike atmosphere that provides instant community — an environment deeply challenged by the rules of coronavirus lockdown.

After the initial shock, most co-living companies coalesced around a few strategies to woo residents back. They offered rent concessions, promoted flexible lease lengths to tenants who didn’t know how long they would be able to stay in New York, and provided a smooth and easy move-in process. Now, eight months into the pandemic, co-living companies say demand is growing again, and a few are even restarting ambitious expansions they had put on hold when the virus first hit.

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Several co-living companies initially responded to the pandemic with an effort to attract medical professionals who were coming to the city to serve Covid-19 patients. Outpost Club, which oversees 350 bedrooms across 20 buildings in New York, offered medical workers discounted housing with no deposit and flexible cancellation terms. Common, a national co-living company, and the Collective, a London-based company that transformed a former hotel in Long Island City into a co-living space, made similar offers.

By the time many medical workers left in July as infection rates levelled off, several co-living companies were offering rent deals to attract traditional tenants. Specials included rent reductions in the range of 30% to 35%, sometimes in the form of one or two months rent-free.

Outpost Club’s chief executive, Sergii Starostin, said he saw students respond to his company’s rent deals first, and professionals followed. The company lost 120 tenants across its New York properties by the height of the pandemic in April, going from 300 people in January down to 180. Numbers started rising in June, but only until September when Outpost Club signed 60 new leases, did the company regain the leases lost earlier this year. Now the company houses a total of 323 tenants in the city. In October, it received 15 requests from landlords interested in working with them to convert traditional apartments into co-living spaces, a big jump from just two in October of last year.

“Flexibility is now the No. 1 thing that tenants want to have,” Starostin said. “Every second person is asking about it.”

About half of Outpost Club’s newly signed leases in a given month are now one- to three-month commitments with a month-to-month option that follows. Before May, just 5% of tenants requested month-to-month options.

Quarters, a global co-living network with four buildings in New York, made similar concessions to get similar results. The number of tenants in their buildings declined to roughly 70% in the second and third quarters of 2020, but the company hopes to see it increase to more than 90% by January.

New York’s case mirrors a national trend. Susan Tjarksen, who studies multifamily capital markets at the real estate analytics firm Cushman & Wakefield, said that occupancy rates at co-living properties hit a pandemic low in June at 86% and rose steadily through the summer. As of October, rates were in the low 90th percentile.

Jorge Hurtado-Burgos, a 21-year-old student and bank client services representative, saw promise in co-living in the midst of the pandemic. In August, he was looking for an easy transition into an apartment after a summer of couch surfing. He chose a four-bedroom shared unit in an East Village apartment managed by Bungalow, a San Francisco-based co-living company that works with landlords to fill, furnish and oversee their investment properties.

Unlike some co-living brands in New York, Bungalow doesn’t own any of the apartments or buildings it outfits. Instead, it currently partners with 47 landlords to rent a total of 430 rooms. The company offered to waive Hurtado-Burgos’s application fee, and he moved in within a week of finding the space.

“It was very straight to the point and easy,” Hurtado-Burgos said.

He signed a six-month lease agreement at $1,430 a month, which includes utilities and cleaning fees, but plans to extend his stay through next summer.

In another Bungalow building in Williamsburg, Nick Nevins, 26, a digital marketing manager, signed a 16-month lease in September, since some co-living companies offer reduced rents for longer lease agreements. On a 12-month lease, Nevins would have paid $1,515, not including utilities, for his en-suite room in a seven-bedroom apartment. Instead, he pays $1,485 a month plus an additional $150 for utilities and cleaning.

“It’s definitely the easiest move-in experience I’ve ever had,” he said, since the apartment came furnished and he only had to bring his own bedroom furniture.

Nevins also looked at other apartment listings in Brooklyn as well as two other Bungalow buildings. He was drawn to the rent-by-room model because he wouldn’t be responsible for replacing roommates.

Co-living residents often pay a higher price per square foot for a bedroom than what their neighbours in traditional buildings might pay. Nevins pays $1,485 a month and has three roommates in a seven-bedroom unit where the monthly rent is more than $8,800. According to StreetEasy, the median monthly rent for a three-plus bedroom in Williamsburg is $3,600. In the East Village, StreetEasy puts an apartment with three or more bedrooms at a median rent of $4,400. But at Hurtado-Burgos’s four-bedroom East Village Bungalow apartment, total rent exceeds $5,000.

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“Co-living isn’t necessarily targeting people who need affordability,” said Nancy Wu, a StreetEasy economist. “If you’re looking to sign a one-year lease, there are lots of opportunities out there for cheaper apartments with two- to three-months' worth of concessions.”

Richard Lustigman, director of co-living at JLL, a real estate services company, agrees that right now, there is increased interest in the traditional rental market because prices are so low. But in the long run, he said, after the pandemic is over, people will be drawn back to the co-living properties that provide more than just a room to rent.

Some of the amenities that have motivated co-living tenants to pay a premium are gradually coming back. Companies that cancelled their cleaning services for residents at the beginning of the pandemic or provided residents instead with weekly “hospitality kits” to clean their own spaces are now bringing professional cleaners back into buildings.

The most elusive amenity that co-living companies originally offered is that of community. Marketing materials showed young residents making friends and having fun together in beautiful common areas. In the pandemic, co-living companies have emphasized other aspects of their model, since many of their common areas are closed or limited and meeting new people presents a health risk.

Despite social distancing, companies and residents have found new, pandemic-appropriate ways to build connections within buildings. Marcy Snyder, a 22-year-old New York University student who is applying to medical school while taking her final classes online, recently hosted a picnic in the park for some of the residents in her Common building in Williamsburg. Snyder said she knew many people who have three-month lease agreements that they keep renewing.

Chengwei Wang, a Columbia University master’s student, has tried everything from a rooftop flower-arranging event to cooking classes on Zoom at Alta+, a high-rise residential building in Queens Plaza, where co-living brand Ollie operates 14 floors of shared apartments. Toussaint Campbell, 23, has also ventured out at Alta+. Recently, he did a socially distanced escape room with about a dozen people. He’s thought about signing up for other events, but it’s a harder sell when events are virtual.

“When I miss them, I wonder if I could have met anyone, but it’s a little less exciting,” he said.

The co-living industry was in the midst of general expansion at the beginning of the year before the coronavirus arrived. Ollie has six expansion projects going on around the country but nothing new planned for New York.

“It’s going to be tough to be a new co-living company in New York right now,” said Gregg Christiansen, Ollie’s president. “I would be concerned if you have a new project opening here.”

Some companies that entered the pandemic with expansion plans are moving forward. Quarters is slated to open a new location in North Williamsburg in December, and Common is planning a two-tower, affordable co-living project with L & M Development in East Harlem, slated to open at the end of 2023. The company won a competition facilitated by the city’s Housing Preservation and Development Department last fall to create a more affordable version of co-living.

“By the time we deliver these projects,” said Brad Hargreaves, chief executive and founder of Common, “we’ll be on the other side of this, and people will be perhaps willing to socialize more than they did before, to make up for lost time.”