Growing co-living sector is future of property says Knight Frank

New shared living hubs with communal spaces are gaining traction in Britain’s city centres and financial backing for them is burgeoning.

The new trend for purpose-built ‘co-living’ accommodation saw dramatic growth during 2023 – and is attracting a slew of big institutional investors.

Co-living has evolved from HMOs (houses in multiple occupation), which traditionally serves the student and young singles market.

But whereas HMOs are limited in scope, with usually just a shared kitchen and bathroom, upmarket co-living hubs borrow from the American condominium (or ‘condo’) market – with communal spaces such as gyms and rooftop gardens.

The focus is on social connectivity, networking and shared experiences, and social events are often organised to promote community bonding.

65% growth

The leases also tend to be more flexible, offering the opportunity of short-term stays for young professionals on temporary assignments.

Knight Frank say the sector experienced 65% growth last year, with nearly 2,500 new beds delivered, and almost £1 billion spent on co-living developments since 2020.

The firm’s latest study, Co-Living Report 2024, shows supply is set to treble to more than 20,000 beds by 2027 and 45% of institutional property investors plan to invest in co-living over the next four years, up from 32% now.

The total number of operational homes of this type in the UK has risen to 7,540, representing a fivefold increase since 2019. Yet, despite this rapid expansion, current delivery accounts for just 0.4% of the potential target market, highlighting the enormous scale of opportunity for developers, investors and lenders in the sector, according to Knight Frank.

Co-living trend

The report highlights key trends shaping the co-living sector. While London dominates with 74% of complete co-living development, the pipeline is expanding to other markets.

Manchester, Liverpool, Sheffield, and Birmingham are leading the way in regional cities, thanks to their large and growing populations of young professionals, strong graduate retention rates, and expanding employment markets.

olilver co living
Oliver Heywood

Oliver Heywood, Partner in the Residential Investments team, said: “The macro drivers for the sector are well-documented and have underpinned sector growth in recent years.

“They include a clear and deepening supply/demand imbalance in towns and cities across the country, increasing population, urbanisation, decreasing household sizes, and shifting consumer attitudes.

“Affordability constraints for potential first-time buyers have also increased the demand for good quality rental housing and supported rental growth.”

Ewa Scott, Associate in the Residential Investments team at Knight Frank, added: “From a valuation perspective, we’re seeing increasing confidence in the sector among lenders.

“This is underpinned by robust fundamentals such as strong occupancy rates, premium rental yields compared to traditional residential assets, and the sector’s resilience during economic fluctuations.”

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