A Fundamental Change in the Housing Market: Co-living in Palma de Mallorca
We explore options in housing to create authentic communities and avoid isolation in a fractured world.
In the previous article about affordability issues in Palma, I have documented the reasons that bring people to look at the rental market and how also the price levels for a basic rent reached unsustainable levels. The same structures, supply and access to rental market are rigid, expensive and a complicated process. How much time is spent on visits, discussions about terms and conditions, credit profile reviews and more?
Not Only A Supply Problem There is a fundamental change occurring in younger generations and in their lifestyles. Today’s renter is different than in the past few decades. He/she values flexibility and utilizes digital technology more than any other generation. These preferences are driven by underlying changes to society and economy. Particularly since "Generation X," people are getting married later and postponing the buying process which means they are living alone and suffering loneliness as a new pandemic illness. These trends also affect single and divorced middle-aged people. The evolution of the job market has concentrated geographical mobility and lack of long-term work contracts in urban highly-populated areas. There is a growing perception that housing ownership is limited, impedes flexibility and stagnates career patterns. The desire to experience the urban city center, its lifestyle and opportunities (in terms of network, services, entertainment and sociality) versus the impending costs of ownership needs a compromise. The world is embracing a shared concepts in many areas of our lives. Independent solutions (traditional flat sharing) usually risk bringing more problems and uncertainties.
Co-Living Is an Option The growing trajectory of co-living is part of a fundamental trend occurring in 21st century. The perception of real estate as a service is blurring lines between residential and hospitality. COVID-19 makes this more of a reality given the health and safety risks of hotels in the near and medium-range future. One reason to start a co-living operation in Palma, and for co-living to ease the current drama, would make this world class city accessible to a larger number of individuals who value being part of a community of global citizens. With a population of 480,000 people in Palma on an island that attracts visitors from 128+ countries, Palma has diversity in art, food and culture. Co-living is defined as an alternative residential solution. In general, a 'co-liver' has his private bedroom in a fully furnished apartment while sharing common areas as kitchen and living with like-minded individuals. With an all-inclusive rate, you can access flexible length of term for stays (usually starting from three months minimum). With a whole package of services like wi-fi and utilities included, weekly cleaning and some amenities like gym or co-working spaces and participate to events and networking opportunities, the co-liver rarely experiences the loneliness typical of living alone in a large city.
How Does This Work? The whole process is managed in a digital and transparent process. With a trusted management team, all the steps and conditions are explained clearly. The contract for the rental is secured electronically. The entire customer journey is on-line, applying a large set of "proptech" innovations. Typically, the apartment consists of three or more bedrooms. The operator is in charge of the whole experience, from on-boarding to setting, arranging and furnishing the building to the property management. During the stay, the renters are given full assistance in helping to develop a community, providing cultural, social, wellness and business events to the residents.
Design Makes a Difference Innovative interior-design increases livable space. The use of smart technology reduces inefficiencies in space which allows living arrangements to be more conductive to a delightful and sustainable ambience. The renter may opt to stay for a long-term but not be burdened by a large financial commitment. Compared to a single studio, renters may save at least 20% in expenses. The savings includes agency commissions (1.8 on avg. x the monthly rate + VAT) and also fixes the division of the utilities bills including wifi. Even the schedule of who is scheduled to clean the bathroom is organized by the management service. At the same time it’s possible to access to designer quality houses (absolutely scarce in Palma at accessible pricing levels) with included amenities such as a garden or large terrace to co-working spaces. The co-living operator pre-qualifies people, grouping similar people within the same flat. Bedrooms are sized according to rates - some may be more spacious and a higher price in order to utilize every square meter of space.
Obstacles Lead to Opportunities Creating a meaningful amount of high-density housing is a big, complicated challenge. Building involves navigating physical, capital, political, and emotional pressures, which can often be in conflict. Unless the cost of navigating that process is reduced and construction costs are lowered (both unlikely), the market will only produce highly-subsidized housing for low-income workers and the most expensive product will be in the luxury sector. This is the current situation in many world-class cities. While Spain has one of the largest percentages of homeowners in Europe at more than 80%, renting is growing exponentially as a viable option. The service industry for the rental segment is largely fragmented and unregulated. Unfortunately for renters, inflation-adjusted rents have increased by 64% since 1960, while real incomes have not kept pace. This dynamic has particularly put cost pressure on the average worker living in urban areas. The mid to long-range forecasts predict an unsatisfied demand for quality rental inventory. The co-living operator pre-qualifies people, grouping similar people within the same flat.
Market Segments Expand Co-living is one of the fastest growing trends in the industry, taking different concepts and approach, being developed in small scale or in large scale buildings with different levels of involvement, from community driven approach a more cost-saving oriented ones. While usually addressing 25 to 35 years old clients who are typically young professionals or remote workers or temporary workers, I think this option will be explored by other age and demographic groups. Middle-aged people, typically single or divorced, or older people over 55, need to have the possibility to live in less restrictive ways in a community setting with people similar to them who are willing to share the housing costs and offer a shared cultural experience to mitigate the possible effects of loneliness and social isolation.
In Conclusion While benefitting customers and renters, it’ a win-win situation also for the landlord. By offering options to a new market segment and having properties renovated for the purpose for shared housing, the value of the property increases as does the investment return. Increasing construction costs (up by 30% in the last few years) and limited new building parcels in high-traffic areas have driven price increases. The entire real estate ecosystem is incentivized to sustain the higher prices while not integrating the offerings into a comprehensive listing system. Our aim is to foster the development of a real estate product where the customers are at the center of the process. Our goal is to provide a full-range of services by launching a scalable platform to centralize an inventory of multi-bedrooms, studios and other real estate options with flexible, all-inclusive and affordable terms. Palma, as well as other towns on the island of Mallorca, has to better accommodate locals and expats, providing smart residential solutions in line of the current trends in the largest cities in the world. With the economic ramifications of COVID dramatically affecting many people in a short span of time, we believe now is the time to start these types of projects. This is why I’m working hard under REMallorca brand to start this project.