It is no surprise that tenure diversity in housing is much needed, with a wider range of options necessary to cater to the needs of residents (be it homeowners or renters). With house prices, the cost of living and rents rising as well as people wanting more flexibility around how they live, developers and investors are acutely aware of the growing demand in all sectors, including Build to Rent (BTR). We have seen an almost meteoric rise in Single-Family Living for example in the past year, but co-living in Britain has not seen the same growth as some residential sectors. But is this about to change?
Co-living currently has the greatest presence in London, but the regions’ planning pipelines are catching up. Estimates from Savills suggest there are only around 4,000 operational co-living units in the UK at present, but it believes there is potential demand from as many as 1,900,000 tenants (with 600,000 of these in London alone).
In February 2024, the Greater London Authority published the ‘Large-scale purpose-built shared living London Plan Guidance’ for adoption. Flexibility has been introduced around space and amenity standards according to location. There is also a recognition of the importance of outdoor space in urban locations from both the wellbeing and environmental perspective and that in some cases, the on-site provision of C3 affordable housing could be acceptable instead of payment for off-site affordable housing (linking back to the Draft Affordable Housing Guidance published last year) further enhancing the mixed-tenure approach to community building. There is still a warning to avoid the ‘clustering’ of BTR developments, including co-living, so there is a balance of housing types in any one place. This focus on design and being in-tune with the needs of a specific location and avoiding a ‘one-size fits all’ approach is encouraging.
The timing of this couldn’t be better, given that the British Property Federation recently reported that, as of September 2023, in London alone there were only 10,833 rooms to rent, with 22,549 individuals searching for a room – a shortfall of 11,716. While this is a snapshot of just London rather than the entirety of the UK, it is indicative of a wider national situation. The hope is that other cities will take note and provide similar guidance.
Detractors claim the smaller personal spaces reduce privacy and that shared living spaces are unwanted by most adults. Supporters point out co-living is a cost-effective solution for those wanting to live in desirable city locations while enjoying a more communal lifestyle. Both sides have a point – undoubtedly those who choose co-living sacrifice living space, but the savings and flexibility are attractive. Unlike private rental contracts, BTR co-living developments often allow for short-term letting and rolling agreements facilitating a more nomadic lifestyle – an appealing proposition for young people chasing work in different areas for example. As well as competitively priced rent, utilities are included which helps with financial planning.
However, co-living shouldn’t be pigeonholed as just appealing to the younger demographic. While clearly suited to recent graduates and those in their twenties finding their feet, it can have advantages for other groups too. It can be a solution for those wanting to get out of the rental cycle, people who need flexibility for their career or even empty nesters – anyone wanting a different way of renting.
There is also a social aspect – we are more connected than ever digitally, but in large cities it is easy to feel lonely, especially if you’re new to an area. Co-living offers an immediate community and the communal aspects of the lifestyle, including a ready-made social life.
Co-living is different to other House of Multiple Occupation (HMO) offerings – a far cry from the traditional bedsit model, it is also a step apart from the typical shared house set up. Liability is reduced as residents don’t have to worry about finding flatmates and having an institutional landlord offers more tenure security. There is often the provision of amenities dependent on the scheme and surrounding area. And being specifically designed and engineered for co-living means these developments have a distinct advantage over their rivals in the market.
As recently as October 2023 Savills reported there are currently around 6,500 co-living units under construction in the UK with £2.25bn of investment to be deployed over the coming years. This kind of investment in co-living will have a significant impact on the housing market and developers should pay attention; they should serve all parts of the affordability spectrum.
Despite the controversies, I believe we will see a rise in BTR co-living around the UK in the coming years. We are already seeing growth of the concept in key cities like Manchester and Birmingham, and with little sign of rental prices dropping any time soon and more renters seeking flexibility, it is a potential solution.
Dedicated BTR co-living developments offer a great value proposition – their simplicity and returns make them an attractive investment. Cost efficiencies mean they can be built in sought-after prime locations in city centres with strong returns. Investors and developers should take note and look to mainland Europe where BTR co-living is already an established, successful part of the residential mix.
Co-living renters will likely have higher expectations of their accommodation than the typical private HMO renter. They will expect efficient management, more of a focus on wellbeing and a better living experience in terms of design, sustainability, and community. Co-living should not be considered a ‘stack ‘em high, sell ‘em cheap’ proposition. It is a sister concept to the much more established BTR model which we’ve seen go from strength to strength in recent years and will require the same attention to detail in planning and execution. Amenities will need to be suited to the area and demographic with upkeep well-managed.
At NHBC we understand our clients’ ambition to diversify their product offering to help reach new markets. We have a wealth of experience working with Build to Rent providers and partner with them to help manage development risk from the earliest stages of land acquisition through to completion. We are there throughout the construction process to support long-term asset protection.
By Niki Kyriacou, Sector Lead Build to Rent
