WeWork famously said that the living sector would be bigger than the working sector. The addressable market does look to be larger, but the market will take time to scale and meet its demand. Scaling a coliving brand is difficult, but can be done with patience, perseverance, and some luck, as MyTown has shown.

Demand does not seem to be the problem to scaling; coliving operators boast of high occupancy rates and recent studies by professional real estate advisory firms show that demand is high in all parts of the world, including Europe, the United States, United Kingdom, India and Asia more broadly. Similarly, a recent study by Colliers in the Philippines, where MyTown operates, showed that almost half of the young professionals living in Metro Manila are “willing to stay in a coliving facility” as a result of the lack of affordable housing and financial and personal costs of their worsening commute.

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The difficulty with scaling coliving mainly comes from supply-side complexities. These complexities can be overcome, as MyTown has shown, but they create a barrier to entry that may result in the supply for coliving to not meet its demand in the short to medium term.

Firstly, the supply of existing real estate that can be renovated and retrofitted into an efficient and livable coliving space is relatively limited. Office or retail spaces are often unsuitable to convert into coliving spaces due to differences in floorplates, engineering and use. Old hotels, hostels and micro-condominium properties are better suited for conversion, but the availability of such assets is few and far between, and their prime locations often result in acquisition costs that are either not feasible for coliving purposes or make rental costs to tenants not truly affordable.

Secondly, building code restrictions on residential inhabitation are complex and significant, and may result in adjusting designs to such an extent that a project still becomes uneconomic due to high renovation costs and/or low total leasable floor areas. As Common CEO Brad Hargreaves accurately stated in a 2019 BisNow article, “you can get in a lot of trouble when you try to cram coliving space into an arrangement where it might not be straightforward.”

Thirdly, there’s a trade-off between growth and efficiency. In an era where blitz-scaling is almost the norm, it is easy to get sucked into focusing merely on high growth, thereby deprioritising careful due diligence, avoiding mid-course corrections in your business model and ensuring healthy and sustainable portfolio yields.

Finally, cash is always a limitation, and for coliving startups a choice between growth or efficiency significantly influences what investor pool you can attract. VC investors typically do not have the investment horizons to see you through a long construction period, and so many coliving operators have decided to go asset-light, similar to how most coworking companies were able to scale up so quickly.

But real estate is a cyclical industry. And growth ‘by all means necessary’ is difficult to sustain in leaner years or a crisis such as the pandemic we are experiencing today. This has left coliving brands and developers to increasingly consider building ground-up, purpose- built coliving developments, which allows one to maximise efficiencies in the building design stage but requires a longer gestation period to reach revenues.

So, after a few years of high growth in asset-light coliving operators, recent investment announcements from Paris, London, and Germany to Hong Kong and the Philippines increasingly show that the trend is moving towards institutional investors looking for fully- integrated ‘build and manage’ coliving companies.

These scaling problems seem pretty universal. In the Philippines, MyTown took a more unconventional, conservative approach early on by building purpose- built coliving properties with minimal debt, and once the concept took off, copy and pasted to scale into one of the largest coliving brands around.

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Several aspects helped MyTown scale through its different stages of growth:

• Existence (0-120 beds): in 2012, we realised that land adjacent to the country’s largest upcoming central business district, Bonifacio Global City (“BGC”), was sold at only a fraction of the land prices inside BGC. Even after correcting for height restrictions and floor-to-area ratios, the price per buildable square meter of the land was less than 20% of what it was sold at inside the business district. This price arbitrage, combined with the lack of affordable urban housing projects and high demand from the young professional population working in those urban centers, allowed us to write our first pitch book, inject our own savings, and with the help of some of our friends and family, we were able to build our first cluster of properties in the immediate vicinity of BGC.
• Survival and Success (120-800 beds): The subsequent two years were some of many lessons in developing and managing coliving properties. Developing unparalleled amenities such as lap pools, gyms, indoor cinemas and karaoke rooms were a clear pull factor to an accelerator for our coliving community. Proof of concept came soon after, when demand exceeded supply and the first corporate clients were brought in to create a healthy, well-diversified revenue mix. Franklin Templeton’s private equity arm took interest and invested in late 2015.
• Take Off (800-4,500 beds): The first few buildings allowed us to learn valuable lessons on how to simplify building designs (architectural and MEPF), optimise construction processes, reduce rework and shorten project scheduling, which enabled us to reduce construction timelines by around 60% and build cost by around 30%. This together with the newly raised private equity investment allowed MyTown to grow fast and exponentially, and be noticed by the investment arm of one of the region’s largest conglomerates, SM Investments Corporation. Together with this new shareholder, we grew to 4,500 beds in two years. During this period, we focused on further margin improvement through operational efficiencies (e.g., automation), and average revenue per tenant (e.g., by adding tenant services such as housekeeping, daily meal plans, club membership, etc.).

As a result of these lessons through different scaling cycles, MyTown has built a business model and portfolio that is commercially profitable, sustainable throughout economic up and downcycles and scalable to other cities that encounter affordable urban rental housing shortages. Each scaling cycle requires specific focus and attention, but the common denominators are to be diligent, creative and patient throughout it all.

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