The co living investment phenomenon is gathering momentum, particularly in markets like the UK and the US. Will this prove a vital concept for the property market in the years to come?
As the UK property market continues to grapple with challenges such as insufficient housing supply and prohibitively high costs for first-time buyers – particularly in areas like London and the south-east – one idea that has been floated as a potential solution is co-living.
For millennials and members of gen Z – the youngest adult generation – who aren’t yet able to get on the property ladder and can’t afford (or simply don’t want) to live alone, the concept of co living spaces makes sense.
Recent research has suggested that investors are taking note of this trend, so could it have an important role to play in how the property market evolves in the coming years?
What is co living space?
The idea behind co living is for groups of individuals – often (but not exclusively) people of similar ages with shared interests and outlooks – to live together in buildings where they have their own private living space, but share communal areas and amenities like games rooms, outdoor areas and even on-site bars and restaurants. Residents can also receive benefits like all-inclusive bills and room cleaning.
There are many examples of these sorts of projects appearing in crowded marketplaces where it’s often a struggle for people to find affordable living space. In the UK, there are co living properties in places like London and Cambridge, while global cities like New York, Chicago and Berlin are also witnessing growth in this space.
In addition to the financial and practical benefits of sharing accommodation, the co living business model can help people enjoy the personal, emotional advantages that come with communal living.
Research carried out by BBC Radio 4 and the Wellcome Collection last year showed that young people were the most likely group in the UK to experience loneliness. Four out of ten 16 to 24-year-olds said they felt lonely on a weekly basis.
Scott Corfe, chief economist at the Social Market Foundation think tank, published a report this year titled ‘Co-Living: A Solution to the Housing Crisis’. He told the New Statesman the social element is “a big benefit to co-living”.
Mr Corfe also highlighted the flexibility of the concept. “There are opportunities to have co living projects that are both part-ownership or rent-based. What underpins both types of co living is the idea of having communal spaces or facilities in between private rooms or housing,” he said.
Atif Shafique, senior researcher on the public services and communities team at the Royal Society of the Arts, noted that “if done right”, co living buildings and community-led housing can be “a useful tool for urban and community planning”.
He added: “It can help in terms of creating cohesive and integrated communities, with richer social capital and higher levels of trust.”
Co living investment trends
Research has provided insights into rising levels of co living investment space, particularly in the US. These trends could offer a signal of things to come in other global markets where young adults are being priced out of the biggest and most expensive cities.
According to real estate services firm JLL, global funding in the co living space has increased by more than 210 per cent annually since 2015, reaching a total of more than US$3.2 billion (£2.5 billion). A market report published by the company in June revealed that $800 million of investment had already been secured this year, with a further $283 million in the pipeline.
Aside from the increase in financial backing from investors, one of the most interesting trends in this segment has been its steady evolution from groups of apartments with rooms and common areas, to a distinct asset class with amenities resembling those often seen in the student accommodation sector.
David Martin, who leads JLL’s US multi-family investment sales platform, said the growth of co living is “absolutely tied to affordability in major markets”. An increasing number of people who want to live in economically prosperous but expensive locations are changing the way they think about housing arrangements.
He also highlighted the potential for this concept to catch on in various destinations around the world.
“The established multi-family markets lacking affordability are not only found in the US, but also Germany, the UK, Hong Kong and India, meaning that co living space is set for rapid expansion globally,” said Mr Martin.
Is co living the future of property investment?
It would be premature to suggest that co living represents the future of property investment, but it’s certainly a significant trend that could prove increasingly influential and attract more interest from investors in the coming years.
According to Propertymark, co living investment can now be seen as a “global movement” that understandably appeals to younger generations dealing with “rising rents and chronic loneliness”.
As far as the broader significance of the concept for the housing market is concerned, it has been suggested that there could be some valuable lessons to be learned with regards to urban planning and use of limited space.
Sadie Morgan, award-winning designer and founder of the architecture firm dRMM, said the answer to the question of how the UK delivers the required 200,000 homes a year “may not lie in traditional housing alone”.
“As demographics change and we have to deal with an ageing population. We have to be smarter about the way we live,” she told the New Statesman.
There are other considerations that must be taken into account where co living is concerned, such as whether it’s a suitable model to cater to families and people on lower incomes.
But it’s undeniably positive that the range of accommodation options and property types available to tenants is expanding.
As James Penfold, planning and communications director at international co living franchise The Collective, has pointed out, it’s not realistic to expect large portions of the population to move into these sorts of developments, but if just a small share of renters find that co living works for them, it reduces pressure on existing housing stock.
“People need different types of housing for different times in their lives,” he noted.
What is a co living unit?
Similarly, for investors, an increase in choice and variety in the market can only be a good thing, since it opens up new opportunities to diversify your portfolio and secure an early stake in asset classes with healthy scope for growth.
The steady unfolding and evolution of this trend in the coming years will give us a clearer idea of just how important co living investment could prove to be for UK property as a whole.
For investors looking to move into this market segment, a fully managed studio apartment within Opto Student Cardiff provides an example of how to secure an income from individually managed units. The UK’s purpose-build student accommodation market is well-established and continually offers buy to let investors a lower entry level and higher than average rental returns.