Co-living developments are a type of purpose-built rental housing, under the same principal as build-to-rent, and their popularity has surged in recent years.
The level of investment into co-living developments across the UK has soared since the pandemic, with construction activity in the space more than doubling since the pandemic, according to new research released by Savills.
While the sector is still relatively small and niche – even more so than build-to-rent which has also seen investment and popularity multiply in recent years – it is a growing trend that more lenders and businesses are becoming increasingly aware of.
There are now 25,021 co-living beds either operational or in the pipeline, and 51% of European investors plan to invest in the space over the next three years. Savills’ investor survey found that investors plan to target 2.6bn euros of capital into the sector over the next three years.
What’s behind the surge?
Since the onset of Covid in early 2020, more tenants than ever have been considering moving into co-living accommodation. Essentially, it entails a purpose-built rental flat, normally a small studio apartment, with a high level of communal and shared space throughout the building.
This might include co-working areas, gyms, cinema rooms and general places in which to socialise, and it is thought this is part of the appeal that has become particularly important post-Covid. More than ever, people do not want to be isolated, and are prioritising a strong sense of community.
Affordability is another key aspect. The individual apartments tend to be small, but your ‘package’ includes access to all the shared amenities on offer, which can be cheaper and more dynamic than a house share. Often, co-living apartments come with bills included, making financial planning easier.
Paul Wellman, associate director of research, points out that residents fine the co-living tenure particularly appealing “due to its emphasis on community and resident interaction at a time when we weren’t able to venture far from our homes”.
He adds: “In the five years to March 2020, applications were submitted nationally for 10,950 co-living beds. Yet in the three years since then, plans for a further 12,150 beds have been submitted, demonstrating the appetite from developers, investors and lenders for the sector.”
Co-living across the UK
Much like build-to-rent, the co-living trend really took off in London, but is now spreading across the rest of the country as its appeal grows and more developers, investors and lenders are looking to get involved.
London still accounts for about 82% of the total market, but it is the huge level of growth seen in some of the UK’s other major and regional cities that is boosting the growth in the sector. In particular, Manchester, Birmingham, Sheffield, Glasgow, Bristol and Leeds are seeing an increase in developments.
A big reason behind this is that these cities are pulling in greater numbers of young professionals in recent years, thanks to improving jobs markets and economies away from the capital, leading to greater investment. The infrastructure, amenities, and transport quality in these cities is continually improving.
Smaller cities such as Reading, Brighton and Guildford have also seen a rise, says the report, proving that the appeal of co-living is likely to spread across a wide range of areas.
The growth of the co-living sector, like build to rent, has drawn a growing number of lenders into the mix.
Morgan Scale, associate director, Savills Debt Advisory, said: “Whilst a few years ago lender appetite for co-living was far more selective than for traditional build to rent product, this is no longer the case and we are seeing strong demand from both bank and non-bank lenders to finance development and investment opportunities for high quality sponsors.
“Lenders have quickly understood that the growth of the sector is reflective of a more permanent shift in resident demand for flexible tenancies and social interaction spaces, and they are keener than ever to provide finance to the sector”.