Co-living typically consists of purpose-built rental housing that includes studio bedroom units along with ample communal amenity space, such as gyms, co-working spaces, resident lounges, and cinemas, of high quality.
There is an expanding pipeline of co-living properties across the UK, as investors, developers, and operators seek to diversify away from conventional real estate assets and into the “Living” sectors. The investment case for co-living is bolstered by several factors, including a chronic housing shortage, a growing population, urbanization, declining household sizes, and changing consumer attitudes.
Co-living is particularly appealing to recent graduates and young professionals embarking on their careers. They are drawn to professionally managed accommodation, which is often located near urban amenities and employment opportunities.
Co-living provides the amenities and sense of community that many residents desire, at an affordable price point. This is especially appealing to those who are already familiar with the community aspect of Purpose Built Student Accommodation (PBSA).
Co-living provides an increased range of options for individuals who are unable to purchase a property or who desire the flexibility of renting.
Rising housing prices, in comparison to average earnings, have made it increasingly unfeasible for many people, especially younger individuals seeking to reside in urban areas near their workplaces and amenities, to purchase property.
Record-high first-time buyer deposits imply that the chance of homeownership is limited to those who are fortunate enough to receive support from the “Bank of Mum and Dad.” As a result, the private rented sector (PRS) has grown, with nearly 2 million more households in the UK renting privately in 2019 compared to 2011, representing a 50% increase from 3.9 million to 5.9 million. In London alone, the number of PRS households has increased by over 300,000, reaching 1.1 million in total.
While this has been a growing trend, the recent surge in housing prices over the past 18 months has made it even more difficult for first-time buyers to achieve homeownership, making co-living a more appealing option.
It is a common misconception that rental rates in co-living schemes are significantly higher than those in the broader residential market, and are therefore only accessible to higher-income earners. However, in reality, co-living rents are targeted to be around 20% lower than the total cost of living in other Private Rented Sector (PRS) accommodation. This discount is approximate and may vary depending on factors such as room sizes and available amenities.
For many tenants, the inclusion of high-quality amenities within the building and the convenience of a single, all-inclusive monthly rental payment outweigh the reduced bedroom size, making co-living an attractive option.
A growing number of local authorities are making plans to accommodate co-living.
As co-living gains acceptance among tenants and the investment community, an increasing number of local authorities are recognizing its advantages and making plans to accommodate it. The 2021 London Plan includes provisions for “large-scale purpose-built shared living” (LSPDSL), which broadly outlines the criteria for such developments. These criteria include a minimum scheme size of around 50 units, a requirement to contribute to off-site affordable housing, and the need for schemes to be under single management, among other policies.
More recently, the Greater London Authority (GLA) has published additional guidance on co-living that will be a significant factor in the London Plan. This guidance is more specific, with requirements for aspects such as amenity and communal areas, as well as minimum and maximum room space standards of 18 sqm and 27 sqm, respectively.
In areas outside of the capital, some local authorities have established planning guidelines that present challenges for co-living developments in terms of viability. For instance, in Birmingham, a draft planning document specifies a minimum room size of 27.5 sqm, while in Liverpool, the council approved a planning advice note stipulating that co-living schemes must comply with nationally prescribed minimum space standards of 37 sqm.
While London has been a pioneer in the co-living space, regional cities are now catching up.
Just like the Build to Rent (BtR) and Multifamily market, the emergence of co-living was first seen in London due to the high demand for affordable rental accommodation. However, in the last three years, 60% of the units submitted for planning have been outside of London, indicating that regional cities have caught up.
In conclusion, co-living has emerged as a viable alternative for those who cannot afford to buy or rent larger homes. With growing demand from young professionals and graduates looking for flexible rental options, co-living has become increasingly popular in major UK cities, with London leading the way. However, regional cities are catching up, with more local authorities planning for co-living developments. Despite some challenges from local authorities with planning guidance, co-living continues to gain momentum with developers, investors and tenants alike. With the ongoing housing shortage and increasing demand for affordable and high-quality rental options, co-living is likely to continue to be an important part of the UK’s rental market.