So… if coliving buildings cost more to build (per square foot) than a “traditional” multifamily building, how is coliving ever economically feasible to build?
As discussed in a previous coliving article, the key metric for evaluating the costs of coliving developments is the cost per bed instead of the traditional cost per square foot metric. As coliving revenue focuses on rent per bed, it is logical to drive building design to yield the lowest cost per bed, rather than focusing on cost per square foot like a traditional multifamily project.
Properly designed coliving buildings maximize both the potential rental revenue while also minimizing construction costs compared to a traditional multifamily construction.
For example, consider two similar multistory residential projects with equivalent site areas and net square footage, one a “traditional” apartment building and the other a coliving project. While the overall total construction costs for the coliving building may be slightly higher, the construction costs per bed are significantly lower due to the increased bedroom density provided in the coliving building.
In both models, the overall building location and size was held constant to provide an accurate comparison, including other aspects of the building programming such as the amenities, retail area, parking assumptions (no structured parking included). The result is a 10-story mid-rise building in urban Chicago with just over 100,000 SF of net residential area.
The key difference is the use of that residential space — while the traditional 1- and 2-bedroom apartment building only supports 90 units and 135 beds, the denser coliving building is able to accommodate 72 units but with 288 beds, in this case a 113% increase in bedroom quantity. This coliving building includes all 4-bedroom/4-bathroom coliving suites — in order to maintain a 1:1 bedroom-to-bathroom ratio like most apartment buildings.
This increased density naturally results in increased construction costs, due in large part to the additional bathroom quantity which increases MEP and interior finish costs. However, while the construction costs of the coliving building in these model increases by a relatively minor modest value (+6%), the additional bedroom density (+113%) results in savings of over 50% in construction cost per bed in this apples-to-apples comparison*.
With the right construction partner, the revenue generated by the additional bedroom density in the coliving building easily outweighs the additional upfront cost of construction, increasing the expected gross income by 22-32% compared to the less dense traditional design. Taking advantage of additional coliving design efficiencies as alluded to above would only further improve that bottom line comparison.
At the end of the day, every site and construction project pose their own unique challenges and potential advantages, so costs inevitably vary, especially between different geographic markets. However, this scenario demonstrates why cost per bed is a far more reliable measurement for coliving construction costs and returns.
With the right design and construction partner, coliving construction costs per bed are significantly lower than traditional multifamily construction while keeping the overall construction cost relatively similar, often making coliving buildings a profitable venture for developers.
*Note: There are other design efficiencies that can typically be leveraged to further reduce construction costs per bed when comparing coliving buildings to traditional multifamily design. However, these advantages were NOT included in these examples to provide an accurate cost comparison.
See the coliving myths article for discussion about the benefits of an experienced coliving design partner and further detail about of some of these advantages, such as decreased parking ratio requirements, alternative layouts to further increase bedroom quantities, etc.
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