The rise of the UK co-living sector
As the UK's rental landscape evolves, the co-living sector is emerging as a significant force, capturing the attention of institutional investors and developers alike. Charlotte Leahy-Jones, an associate in the Knight Frank Residential Investment team, outlines the reasons for this growth.
2 minutes to read
Meeting Modern Housing Needs
Co-living has grown in popularity amongst renters partly as a response to the UK's wider housing challenges, where the supply of affordable, quality housing lags far behind demand. In 2023, we saw nearly 2,500 new co-living units completed – a 65% increase from the previous year – bringing the total number of operational units in the UK to 7,540.
This surge reflects a broader trend towards urban living, with more individuals desiring flexible, affordable, community-oriented housing options. Co-living offers this, often in prime, central locations, providing a viable alternative for those priced out of the UK's traditional housing market.
Investment Landscape
The investment potential of co-living is gaining significant traction. Nearly £1bn has been spent on developments since 2020, with 45% of institutional investors indicating plans to invest in this asset class by 2028, up from 32% currently.
While London accounts for 74% of completed co-living units, regional cities such as Manchester, Liverpool, and Birmingham are also seeing increased development activity, driven by their large populations of young professionals and strong employment markets.
Investor Appeal
The co-living model's attraction for investors is multifaceted:
1. Broad demographic appeal: The typical co-living resident is aged between 26 and 40, valuing flexibility, social interaction, and convenience.
2. Strong lease-up rates: Some projects have achieved full occupancy within months of completion.
3. High tenant satisfaction: A Homeviews survey found that 92% of residents would recommend their landlord to friends and family.
Future Outlook
The co-living sector is poised for continued rapid expansion. The current pipeline includes over 13,000 units either under construction or with planning permission granted, indicating that supply could nearly triple in the next few years.
As local authorities increasingly recognize the role of co-living in addressing housing shortages, more policies are being adopted to facilitate these developments.
Conclusion
Co-living is not just a passing trend but a sustainable and scalable solution to the UK's housing challenges. It represents a unique opportunity for investors to capitalize on an emerging asset class that not only meets the needs of a changing tenant base but also offers the potential for significant financial returns.
As the sector matures, those who move early to understand and invest in co-living will likely reap the benefits of this dynamic and evolving market. It's a critical area for investors to watch and engage with in the coming years.