How the Gig Economy is Affecting Real Estate
In a few short years, “co-living” and “co-working” have gone from a niche alternative to something that every major player in real estate wants a slice of.
One important phenomena driving this shift is changes in the way people work today. People now work 24-7 from anywhere in the world and have lower levels of job security as compared to previous generations. This has given rise to the emergence of the "gig economy" - a key driver behind the growth of short term rentals.
The Extinction of the 9-to-5 Workday
For much of the last few decades, the majority of the population held jobs that started at 9am and ended at 5pm.
Today, that 9-to-5 schedule is extinct. Technology now allows people to work across time and space, blurring the lines that separated working and non-working hours.
Technology has also changed where people work. Instead of being stuck at a cubicle, working out of coffee shops, in hotel lounges, or on a park bench is no longer a novelty but the norm.
Even for companies who operate based on 9-to-5 office hours, employers find that allowing remote work has benefits. Not only can it increase productivity and save cost, but can also be beneficial in closing the gender gap by allowing young mothers to work from home.
There are several types of workers whose work hours fall outside the 9-to-5 schedule:
Those who hold part time jobs along with full-time jobs or while studying,
Those who work remotely (whether in a full-time or part-time capacity) for an employer, and
Those who are self-employed.
Gallup's 2017 State of the American Workplace report showed that as many as 43% of American employees were working remotely and for longer periods.
A Growing Freelance Economy
Today, the “side hustle” or “side gig” has become the norm as a way to make ends meet.
This is partly due to financial pressures from the rising cost of living (with rents increasing 2x as fast as wages, according to a report by StreetEasy examining data between 2010 – 2017). But it is also accelerated by online work platforms including as Uber, Airbnb, Etsy, and Fiverr that allow individuals to earn an income outside of traditional employment.
Whether by deliberate lifestyle design or prompted by financial pressures, millions of workers across the United States have started earning their living through the "gig economy". Many workers often hold multiple gigs at the same time.
A 2017 annual freelancing study predicts that freelancers will become the U.S. workforce majority within a decade. Currently, already ~50% of millennial workers are already freelancing,
The Evolution of Real Estate
All these reasons combined have led to several rising trends that hold important implications for real estate. Some of these trends include:
1. Growth of short-term corporate rentals
Hiring experts or specialists across regions allow a company to scale up and down its operations at will. This translates to cost savings and increased ability to grow. To meet the needs of these companies, corporate rental companies have grown in scale. These companies ensure an apartment is "move in ready" for traveling business people.
2. Growth of short-term residential rentals and co-living
There is a growing number of self-employed freelancers who move from place to place working on temporary projects. Such "digital nomads" create demand for short term rentals and co-living spaces that provide access to amenities they would not be able to afford otherwise.
3. Increased market prices crowding out every day renters
Short-term rental options provide flexibility for renters, but lead to increased prices per night. These steeper prices are a tradeoff for the flexibility and (almost hotel-like) services provided. Regular renters who can only afford monthly rents are being squeezed out of units that co-living and corporate rental companies are snapping up.
4. Lack of long-term contracts leads to low reserves and potential crisis if economy dips
Many co-living and co-working companies sign short term contracts (for as little as weeks at a time) with the individuals and companies renting from them. This creates a ticking time bomb for the whole industry. Any dip in the economy could mean these contracts will not get renewed and units will stay vacant as renters cut costs. It also raises the question of sustainability (in the event of a crisis) for companies with low reserves due to their short-term contracts.
While there is a lot of potential for co-living and co-working to meet gaps in the market, there are also risks and concerns to consider.
For instance, authorities in Boston are looking at how to regulate the industry. Corporate and co-living spaces offer similar high-end services and finishes as hotels yet are not taxed like hotels, and hence are able to offer more competitive prices.
Meanwhile, the founder of one of the most successful co-living start-ups, Common, has shifted away from its core model to more traditional rentals. This move acts as a hedge against its co-living properties in case the market goes down.
Given the impact of changes in the economy and speculation surrounding increased regulation, it would be wise to treat the current hype around co-living and short-term rentals with caution, and to understand the implications and long-term impacts of investing into this space.