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Co-living Set For Transformational Growth

Co-living Set For Transformational Growth

13.11.19

A new report from JLL indicates there are enough investors out there that are prepared to back co-living for the sector to experience transformational growth over the next few years. Schemes with about 6,480 beds have been built to date across Europe but factoring in projects in development, that number is expected to rise to 23,150 within a few years.

About 20% of these beds will be in London, making it by far the biggest European city for co-living. Three other UK cities – Manchester, Glasgow and Birmingham – also rank in the top 20 European co-living markets.

Richard Lustigman, director of living capital markets, co-living, at JLL, says that growing investor interest is likely to drive a step change in the development of co-living schemes over the coming years.

“We know that there are a number of different types of investor that are absolutely waiting to enter the sector,” he says. “They are waiting for the right opportunities and the right partners. We expect to see a significant direct investment in the sector.”

Some at the Investec event expressed concern about uncertainty over valuations and the lack of transactional evidence in the co-living market. However, Lustigman says JLL has worked on a number of valuations for loan purposes that will provide comfort to investors entering the market.

He adds that investors are more focused on the quality of co-living properties and their income performance than valuation uncertainty.

Another area of uncertainty is planning policy because co-living developments do not fall under standard residential use classes. However, Lustigman says that planning authorities have developed guidance that has helped reassure developers and investors. For example, the draft London Plan introduced a new policy to define and guide co-living development.

As investors become increasingly comfortable with the concept of co-living, it is expected that the size of schemes will increase. There is already evidence of this happening.

Just 53% of co-living properties currently have more than 100 beds but this will increase to 79% once those in planning are developed, according to JLL.

More schemes featuring co-living alongside other uses are also expected to emerge. The Collective is already moving in this direction with its development on Borough High Street, which received a resolution to grant planning last week. It will feature a 14,000 sq ft ‘community and employment incubator’, providing space for local artists and workspace that will be used to run training programmes for young people.

Lustigman says almost all co-living schemes that JLL is advising on now have a commercial element.

As the sector grows, he expects to see more established developers from other sectors enter the market. This is already starting to happen. Student housing providers including iQ and Scape are working on co-living schemes.

However, it will not be easy for developers from traditional sectors, he argues, because co-living requires “a bit of magic dust”.

The most successful operators so far have been those led by entrepreneurial figures that share a similar outlook and values to the people in their buildings, he says, adding that “those that stand the test of time will be those that really understand their consumers”.

With the co-living market still in its infancy, there is clearly still a lot to play for.

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