Co-living is a growing trend in the UK, especially in major cities like London. Co-living can be defined as professionally-managed apartment developments that provide smaller private areas compensated by larger communal areas and amenities.
It offers an alternative to traditional rented housing options by providing more facilities than flat-shares, often with the benefits of easy-in-easy-out lets.
Co-living targets young professionals or recent graduates, and those seeking a sense of community. There are several factors driving growing interest from investors and developers:
Urbanisation: More people are moving to cities, increasing the demand for housing.
Affordability: Rising housing costs make traditional house purchase or rental options less attainable, making co-living an attractive alternative.
Workforce mobility: Co-living caters to a mobile workforce seeking flexible, affordable living solutions in prime locations.
Desire for community: The pandemic heightened the need for social interaction, which co-living fosters through shared spaces and planned activities.
Co-living is seen as a financially sound investment opportunity with significant returns. Developers are drawn to its potential for higher yields and more resilient rental income streams compared to traditional Build to Rent (BTR) models.
Characteristics of Co-Living
While there are similarities with other housing models, co-living distinguishes itself in several way.
Though both offer shared accommodation, co-living developments go beyond the familiar house share (or Houses in Multiple Occupation, HMOs). Well-designed co-living developments prioritise design, sustainability, and a strong community atmosphere. They offer additional services like concierge services and regular cleaning, which are not typically found in HMOs.
There are also similarities with apart-hotels. But while both offer furnished units with amenities, co-living focuses on fostering a longer-term community. Unlike apart-hotels, co-living spaces often require minimum tenancy durations (e.g. three months) and offer opportunities for residents to connect and build relationships.
One important factor to note is that co-living developments are commonly classified as "sui generis," meaning that they fall outside traditional use classes like C1 (hotels) or C3 (flats and houses).
This lack of current clear classification impacts planning permissions, space requirements, and applicable regulations. The industry is calling for steps to rectify this issue and encourage more local authorities to get behind co-living projects in order to allow speedier delivery of projects.
Growth areas for Co-Living
London currently leads in the number of operational co-living spaces, but regional cities like Manchester, Sheffield, and Birmingham are rapidly catching up. This expansion is fuelled by high demand from young professionals and students seeking affordable, community-centric living options.
Investors are recognising the potential of these regional markets and actively seeking opportunities. The success of co-living projects hinges on several key factors:
Attractive amenities: These can include gyms, laundry facilities, communal kitchens, co-working spaces, cinemas, and social event spaces, enhancing the convenience and lifestyle offered.
Strong community-building: Creating a sense of belonging and facilitating social interaction is crucial. This can be achieved through well-designed communal spaces, organised events, and a focus on shared interests.
Sustainability: Incorporating eco-friendly designs and practices is increasingly important, aligning with the values of both residents and developers.
The future of co-living in the UK appears positive, with continued growth expected in both London and regional cities. The sector's appeal lies in its ability to address the needs of a changing demographic that prioritizes affordability, flexibility, community, and a sense of belonging
Operators in the market
Many of the developers and operators in co-living are also involved in the build-to-rent and PBSA sectors. For example, Downing is active in student accommodation, but also opened its Square Gardens co-living scheme in Manchester in April 2024. This is a 45-storey tower includes a range of amenities including a gym, co-working spaces and 2.5 acres of landscaped outdoor space.
Re:Shape is another developer operating across PBSA, BtR, apart-hotels and co-living. It has developed several properties, many of which combine living styles such as BtR and co-living alongside workspaces and office space.
Dandi opened its co-living scheme in Wembley in 2022, with 355 apartments and two floors of amenity space. It was a highly popular development which was fully let within three months of coming to market. Dandi’s other locations across London include Harrow and Battersea.
Folk’s Sunday Mills scheme in Earlsfield also showed the popularity of co-living, letting all 315 beds in just four months.
Other operators are in the market, and there is no doubt that more will be tapping into this growth market over the next few years.
Distinguishing Co-Living from Build-to-Rent
While both co-living and Build-to-Rent (BTR) cater to the rental market, there are key distinctions between the two models:
Target market and community focus: Co-living specifically targets individuals seeking a community-oriented living experience, particularly millennials and young professionals. These developments prioritise social interaction through shared amenities like communal kitchens, lounges, and workspaces, often coupled with social events. In contrast, BTR encompasses a broader range of renters and focuses on providing high-quality, purpose-built rental units with desirable amenities but doesn't necessarily emphasize the same level of community building.
Unit configuration and design: Co-living typically involves individual leases for private bedrooms with shared facilities and expansive communal areas. This design encourages interaction and fosters a sense of shared living. BTR developments, on the other hand, often feature a mix of studio, one-, two-, and even three-bedroom apartments, catering to a wider variety of needs and household sizes.
Services and amenities: Both co-living and BTR offer amenities that go beyond traditional rental properties, but the type and extent can differ. Co-living often includes services like cleaning, linen change, on-site management, and social event programming as part of the rental package, creating a more comprehensive living experience. BTR amenities are diverse and can include gyms, co-working spaces, and package rooms, but the focus is on convenience and lifestyle enhancement rather than fostering a close-knit community.
Lease flexibility: Co-living typically offers more flexible lease terms, ranging from a few months to a year, catering to the mobile lifestyle of its target demographic. BTR lease terms can vary, but they often align more closely with traditional rental agreements, offering longer-term options.
In essence, co-living distinguishes itself from BTR by placing emphasis on community living, offering a more service-driven rental experience tailored to a specific demographic seeking social interaction and flexibility. BTR, while encompassing co-living as a segment, caters to a broader market with a focus on providing high-quality rental units with desirable amenities.
The investor perspective and co-living in Europe
There is no doubting the potential of the UK co-living sector. The Co-Living Group which acquires and re-purposes spaces for co-living, estimates that the London co-living market alone is worth £5.35 billion per year. It also provides higher returns per square foot compared to ‘typical residential models.’
A 2023 report from Savills noted that 51% of European investors planned to be in the sector, putting it in third place behind BtR and purpose built student accommodation as a living asset class.
While both offer attractive investment opportunities, co-living's focus on community building and high occupancy rates due to demand from its niche market can lead to more resilient rental income streams and higher yields for developers.
The UK has the strongest market growth in co-living compared to other European countries. However, this is a growing sector in France, the Netherlands, Germany and Spain.
Across Europe, there is a consistent trend of increasing urbanisation. As more people move from smaller towns to major cities, the demand for housing in these urban centres rises significantly. The United Nations projects that by 2050, 82% of Europe's population will reside in cities, representing an influx of approximately 60 million people. This move to city living is creating the need for innovative and flexible housing solutions like co-living to accommodate the growing urban population.
The whole of Europe, and particularly in popular urban centres, is seeing falling housing affordability. Rising housing costs and apartment prices, especially in cities, have made traditional housing options unattainable for many, particularly young professionals and recent graduates.
Co-living presents a more affordable alternative to traditional renting or homeownership in these markets. By offering shared amenities and flexible living arrangements, co-living provides a cost-effective solution that aligns with the financial realities of its target demographic.
In addition, the rise of a globalised and interconnected economy has led to increased workforce mobility, especially among young professionals. Individuals are drawn to cities with thriving job markets and opportunities for career advancement, further contributing to urbanisation.
Co-living caters to this mobile workforce by offering flexible lease terms and a hassle-free living experience. Co-living provides an ideal solution for these individuals, allowing them to seamlessly integrate into new cities without the burden of long-term commitments or complicated housing arrangements.
Beyond economic factors, a shift in lifestyle preferences, particularly among millennials and Gen Z, is contributing to the demand for co-living spaces. These generations often prioritize experiences, community, and social interaction.
Co-living spaces cater to these preferences by offering opportunities for connection through shared amenities, social events, and a sense of community. The COVID-19 pandemic further highlighted the importance of social connections, making the community aspect of co-living to this generation even more appealing.
Co-living sector growth and prospects in the UK
The UK's co-living sector is experiencing a period of significant growth, fuelled by factors such as housing affordability challenges and changing lifestyle preferences, much like the trends observed across Europe. There is significant potential for this sector in the next few years.
In 2023 alone, the UK witnessed the completion of nearly 2,500 new co-living units, marking a substantial 65% increase compared to the previous year. This growth brought the total number of operational co-living units in the UK to 7,540.
The sector's future appears even more promising, with over 13,000 units currently under construction or with planning permission granted. This indicates the potential for the UK's co-living sector to nearly triple in size within the next few years.
There are also strong factors that indicate future growth. Co-living can be viewed not just as a trend, but as a practical solution to the UK's pressing housing issues.
The increasing demand for affordable, quality housing, particularly in urban centres, is a key driver. Co-living offers a viable alternative for those priced out of the traditional housing market, particularly young professionals seeking flexible and conveniently located accommodation.
The co-living model has gained significant interest from institutional investors, with nearly £1 billion invested in developments since 2020. This appeal stems from factors such as high tenant satisfaction rates (92% recommendation rate according to a Homeviews survey), strong lease-up rates (some projects achieving full occupancy within months), and the sector's broad appeal to a demographic (26-40 age group) that values flexibility and convenience.
There is also growing recognition among UK local authorities of co-living's role in addressing housing shortages. This has led to the adoption of policies that facilitate co-living developments, further bolstering the sector's growth prospects.
And while London currently dominates the UK's co-living market with 74% of completed units, the sector is witnessing a rise in development activity in other major cities such as Manchester, Liverpool, and Birmingham. These cities, with their large populations of young professionals and robust employment markets, present significant potential for co-living expansion.
Conclusion
The UK co-living sector is on a trajectory of rapid growth, driven by its ability to provide a solution to housing affordability challenges and meet the evolving needs of a changing tenant base.
With strong investor interest, government support, and expansion beyond London, the sector is well-positioned for continued success in the next five years. However, navigating the planning permission process, especially in areas with specific co-living policies like London, remains crucial for developers seeking to capitalize on this dynamic and evolving market.
Further reading