Co-living developments are a type of purpose-built rental housing, under the same principle as Build To Rent (BTR) but offering smaller size apartments. 

These apartments are usually around 20-30 sqm, with access to communal amenities.

Key to the concept is community living. Typically, young professionals will move in with like-minded people, sharing services and benefiting from flexible rental terms. It is still a nascent sector but one which has been steadily growing since the pandemic. This growth has been largely in response to demand for more housing in better locations and the issue of first-time buyers being unable to afford their first home.

The investment case

It is still early days, but on the back of the success of BTR and purpose-built student accommodation, appetite for co-living from investors and lenders is growing. It has proven to be a popular model in Germany and we now have some successful case studies in the UK. These include Folk’s Sunday Mills scheme in Earlsfield, and Dandi’s scheme at Wembley Park, both of which have achieved strong lease up rates and rental growth. 

In addition, the higher density of the co-living model, usually leading to higher achievable rent per sq ft metrics, makes it a better financial proposition for developers trying to make appraisals stack, as well as for lenders looking to lend on assets that show healthy levels of profitability and which are capable of bearing higher finance costs.

Audience and marketing

Co-living schemes are very attractive to graduates and young professionals – Dandi’s flagship co-living scheme in Wembley was fully let within 91 days of coming to market, while Sunday Mills in Earlsfield opened to residents at the end of October 2023 with 50% of the units leased before opening. According to a recent Savills report, 82% of Dandi Wembley residents said the scheme improved their quality of life.

Targeted marketing by operators sells an appealing lifestyle of a vibrant urban community with access to social events and a range of amenities. Plus, the benefit of shorter than average tenancy agreements, around 3 – 9 months, gives time for those on work placement schemes or probation in a new role to make longer-term decisions.

Regional vs city development

London is leading the way, but mirroring the growth of BTR, schemes are coming in smaller towns such as Reading and Guildford, as well as the UK’s major regional hubs, such as Manchester, Sheffield, Glasgow, and Birmingham. 

Co-living certainly has the potential to be a success in all towns with strong employment opportunities, particularly university towns in which those formerly residing in purpose-built student accommodation (PBSA) schemes wish to continue living in vibrant, communally minded developments. We may, in fact, see regional co-living developments be the main driver for future growth in the sector.

Regulation

However, to date, planning has been an issue for co-living schemes. Certain London boroughs have deployed a blanket ‘no go’ policy. Currently, co-living does not have its own use class and therefore falls under ‘sui generis’ in the UK, meaning there is no rule book to follow.

In 2021, the Mayor of London introduced the London Plan – a set of policies for growth in the capital looking at, amongst others, housing and infrastructure. Looking at ‘new ways of living’, the plan introduced Policy H16 pertaining to co-living schemes. Notably, each council must follow the Plan, though is allowed to add additional requirements. Developers are finding themselves needing to take open-minded boroughs on their development journey, in the hope of educating them that co-living provides appropriate, quality accommodation. That said, as the sector gains momentum, there will be a precedent set for others to follow.

Alongside our own, overall lending appetite for co-living has definitely increased in recent years as the sector continues to mature. Co-living is a unique opportunity to redefine city living in a way that is not only profitable but meets the needs of today’s society. 

* Elliot Blatt is Head of Origination at ASK Partners *