With the CoLiving sector growing in demand and popularity with each year, it’s created a sector that many are predicting has PBSA-sized prospects. Based off a similar multi-tenant residential set-up, the asset class has become popular with professionals of all ages, with its competitive rental models and growing geographic options across the UK. Same too goes for Investors, with CoLiving models achieving ‘higher returns for investors through densification and offering a quality living experience at comparatively lower rents’ (Conscious CoLiving).
For us to understand the size of the potential here, we’ll break down the market today, the demand, the challenges, and the investment opportunities from various industry sources available. Because one thing is for sure, the tenancies may vary, but the desire for living in CoLiving spaces is just as HOT as PBSA.
“The demand for rental property in the UK now far exceeds supply. SpareRoom data shows that, as of September 2023, there is a shortfall of 11,716 rooms to rent in London alone. Trends suggest this is only going to increase, and requires not only a step change in the delivery of new homes, but an increasingly diverse supply.” (British Property Federation)
The Market and The Demand –
The UK housing market is challenged with a lack of homes for the growing population, with the public and private sector looking for ways to ease the supply vs demand pressure. CoLiving schemes are coming through to tackle the housing crisis. They offer shared affordable, high-quality accommodation, predominantly for 18 – 40-year-olds, with fully furnished private living units, communal areas and often flexible working space.
There are currently around 6,500 CoLiving units under construction in the UK:
- The Gorge in Exeter, 133 studio homes
- Downing’s £227 million 2,200 unit co-living scheme in Manchester
- Union’s £191 million funded Vita two-tower CoLiving schemes in Manchester
- Co-living schemes are also now becoming established in London, through developments such as The Collective in Canary Wharf, Folk in Battersea and Enclavein Croydon.
There are also 2,500 beds soon to complete in Manchester, Watkin Jones & Moda are preparing schemes in Leeds with Birmingham, Edinburgh, Glasgow, Sheffield, Newcastle, Cardiff, Nottingham and Bristol all having a growing pipeline of projects coming through, which is encouraging to see. (Savills)
Turning to Europe, JLL’s head of EMEA Living Research Nick Whitten notes:
“Currently there are around 56,000 operational coliving beds across Europe with a pipeline for a further 75,000 beds. This is a drop in the ocean when considered in the context that there are 65 million rental households across Europe.”
The Challenges –
While there are circa 4,000 operational CoLiving units in the UK, there’s potential demand from 1,900,00 tenants (600,000 in London alone) – according to Savills.
There are a few factors slowing supply:
- The market is still very much nascent, and has a smaller footprint relative to sectors like hotels, PBSA and Build to Rent, which are also competing for land.
- Planning permissions can be hard to secure which also delays development.
- There are currently 7,300 beds at the planning application stage and another 9,700 with planning consent, demonstrating more development is coming, but maybe not quick enough.
- Use class is also a debate, testing viability for purpose built shared living as C1 or Sui Generis use.
“Following a survey of European investors with over €1 trillion of assets under management, Savills found that 38% were already investing in coliving, with 51% planning to invest within three years. In the UK alone, Savills notes £2.25 billion of investment is set to be deployed over the coming years.” (Hospitality Investor)
The Investment Opportunities –
There’s definitely momentum behind the sector with £2.25 billion of investment to be deployed over the coming years. The demand for rental properties, especially in major cities, remains at an all-time high. This is supported by growing student numbers, with investor interest in PBSA rising by 32 per cent in two years, according to the latest stats from Investec.
Co-living spaces is essentially the next best thing for graduates following PBSA. As the co-living space picks up across the UK and appeals to tenants, it should also be on the radar of investors. APG, British Airways, BP Pension Fund, Co-Liv Fund (DTZIM), VITA, Blackrock and Oaktree are some of the key operators behind co-living units at Living Scape, Dandi, Folk, Ark, The Collective, Union and Outpost. (Savills)
“We are seeing substantially more demand over the last 12 months specifically for this asset class from a debt position and from an equity position,” Chris Theodosiou, partner, residential valuation at Allsop says, adding “We are seeing equity looking at unconditional sites with the planning potential for co-living, and we’re seeing debt funders both happy to do the initial bridge funding and then also doing the development and even transitioning into a stabilized investment position as well.” (Hospitality Investor)
The facts don’t lie – we know CoLiving has the mark of Investor appeal, tenant demand and higher returns, and while it’s still early days for the asset class in the UK; it’s clear there is huge room for growth in the sector. So, it begs the question… what do you think of this asset class? And are you positioning yourself to capitalise on the success of CoLiving assets?