Co-living at a crossroads: multifunction, mixed-use and maturity

Co-living in the UK is grappling with a regulatory onslaught that will reshape the sector. Developers and operators face new hurdles at every turn, including the latest amendments in the London Plan and broader legislative shifts elsewhere in the country. In a recent roundtable discussion at JLL’s offices in central London, Estates Gazette examined how these changes are affecting the sector – and whether co-living can survive a tightening grip of regulation. The living sector accounted for £10bn of £38bn of UK real estate investment last year, according to JLL analysis, its share of all investment rising to 26% from 23% a year earlier. Within the build-to-rent market, co-living is carving out a growing niche. Wilhelm Wrede, associate director at JLL, highlighted that in 2024, co-living accounted for 7% of total BTR investment, a significant jump from the 2% average over the past five years. “With an expanding pipeline, the sector is set for further growth,” Wrede said. “London is still very much the focus, with 76% of the operational stock. We are seeing an increase of regional schemes coming through, and 63% of the pipeline now is outside of London… Over the past two years, we’ve seen a significant increase in schemes coming through in Tier 1 regional cities.” Difficult definitions Harry Philpot, a principal at developer Node, described co-living as a sector that “takes a while for people to warm up to”, adding that the lack of a consistent definition for the sub-sector can hamper selling the concept globally. “We work in three continents, so if you say co-living to an American, they think cluster. If you’re in Spain, it’s flex living. UK co-living is what you would call micro in the US,” he said. “There’s no specific global definition. So when you’re talking to investors who come in, for example from the US, getting that across is really important.” Philpot added: “Co-living is kind of an extension of BTR – it’s homes, it’s living. It doesn’t need to be overly complicated or crazy or conceptual. From our perspective, the simpler it is, the more funders are going to get involved, and you need funders to support the market.” Robbie Nightingale, development director of Re:shape, said the lack of cohesion is an issue even within the UK itself, as “there are at least three different business models within the term co-living”. “A lot of the original co-living schemes were cluster based,” Nightingale said. “Then there were a lot of co-living schemes that are more service apartment or hotel-style living. What we’re doing is more of the studio BTR or young professional housing where it effectively is studio apartments and one-bedroom apartments with a lot of amenity space designed for the 20 to 35-year-old demographic.” The spectrum of residential assets in the UK spans from “very small apartments and a lot of amenities” to the “typical for-sale residential product with no amenities”, said Jean-Marc Vandevivere, chief executive at Platform_.  He added: “BTR is closer to the residential for-sale part of the spectrum where you have the same size apartment or slightly smaller with a lot of amenities. And then you have so many different models in between, and there is a market for all.” Miles Keeley, head of acquisitions at HUB, said the variation in product being offered in the co-living sector mirrors the purpose-built student accommodation sector. “PBSA comes in all different shapes and sizes as well – there are clusters, studios and everything in between,” Keeley said. “There’s a trend with living now as well – if you look at hotels, you don’t question whether it’s an aparthotel or a boutique hotel. It’s just a hotel. “Now everyone’s talking about deploying to living with BTR, student and co-living being the subcategory. You slice it up as much as you want. The people investing are allocated to ‘living’ now, more so than just ‘residential’.” Troy Tomasik, founder and chief executive at Outpost Management, echoed that sentiment. “Investors shouldn’t necessarily get too focused on is it co-living, is it flex living, is it something else, but really look at the underlying demographic profile of the tenants that live there and assign a category to that.” City to city The Greater London Authority released updated guidance on the design of ‘large-scale purpose-built shared living’ in February 2024, in collaboration with the sector. The plan has been widely accepted, so much so that the experts found that leaders in regional cities are looking to the London Plan on co-living applications as well. But Tristram Ford, head of divestment at Watkin Jones, warned that a “one-size-fits-all approach is naive across basically any sector of real estate”. “Different councils have different views in terms of what a co-living product should look like,” he said. “Starting off in London, it is going to be a different product in [different] regions in terms of what it looks like from a specification in unit sizes. You’re trying to find something that’s ultimately iterative and adaptable.  We are looking to provide for a void in the market, and there are a lot of bits you can draw on. Ultimately the end-result will be different in different locations. Otherwise, it fundamentally won’t stack and just won’t work.” Indeed, experts around the table all had different ideas of what makes the ratio of amenity space per resident stack for their business model. Keeley said from a HUB perspective, the room size it is aiming for is between 18 and 20 sq m to drive value, whereas Philpot said for Node the width of a room size is more important than the total size. “We would rather an 18 sq m with 3 sq m width than a 24 sq m room with a 2.5 sq m width. That width is so important, because if you feel like you are living in a corridor, if you can’t have a bed in a certain way, it doesn’t work,” he said. Re:shape has a ratio of 3.5 sq m of amenity for every sq m of resident space. Nightingale said: “We’re at 21 sq m in London, whereas in Salford, we have had to go a bit bigger at 24 sq m. But anything bigger than that, then you cannot be providing 3.5-4 sq m amenity space, because it just doesn’t work.” However, co-living creators also stressed the importance of not just providing amenity for the sake of it. “You don’t just have a tick box gym,” said Watkin Jones’ Ford. “It’s there for the purposeful use of space. So if you’re going to have a gym, it’s a full gym and it’s used correctly. Same with the kitchen. Same with the amenity areas. But there is also a focus in terms of onsite management to get people together, if you’re trying to create these communities and get residents to  together.” Pivot from BTR When pitching co-living to other investors and financiers, Chris Saunders, investment director of the Folk Co-Living fund at DTZ Investors, said the focus is on the similarity of the investment characteristics to the broader BTR space. “Rents go up in line with inflation and wage growth, and it’s very defensive because people need somewhere to live,” he said. Keeley added that co-living has a “similar sort of viability outcome between co-living and PBSA”. “Often in central London, [co-living] works better than straight BTR. If you can do co-living, create homes, create affordable housing, that’s what people need. I see a lot of BTR developers have pivoted either to PBSA or co-living, just because things still need to be built.” Keeley added that co-living has also proved its value within wider mixed-use developments. “It’s complementary because you’ve got different types of uses on the site, mixed communities, and it makes it all viable, so you can create your BTR but the co-living helps the whole appraisal. What you need is investors, risk equity, that understands multiple sectors or multiple sub-sectors.” Watkin Jones sees regional co-living as “having a first-mover advantage”, Ford said. “Co-living provides density on a site, more than what you can deliver via BTR. BTR is quite difficult for us now in most locations, with build costs and where yields have moved, and where funding markets are. [The investment market] seems to align quite well for co-living. Plus, a lot of funders that really see this as an exciting opportunity that is probably a little bit underdeveloped now.” The regulatory maze Vandevivere noted that with the Renters  Reform Bill on the horizon, regulation will “create even more blurriness between a traditional BTR and co-living”. He said: “Now, with the flexibility that tenants will have in BTR, you won’t have the 12-month assured shorthold tenancies. So any BTR tenant will have the same flexibility as co-living as well.” Rachel Orton, a partner at law firm Clyde & Co, added that the bill has introduced uncertainty in the market, with details unclear. She said: “The last time it got debated in the House of Lords was February. Since then, there have been 50 pages of amendments tabled. How can we possibly predict at the moment where the detail is going to go?” Co-living developers agreed that average tenancy lengths in their developments so far have been 12 months. Tomasik said at Outpost tenants are offered flexibility in tenancy length every month. “Every single month, we’re offering the ability for tenants to take a lease ranging from six to 18 months across 800 units. Average tenancy stay is 12.1 months.” Nightingale said that a part of attracting tenants for a 12-month period is “ensuring that you’re delivering a product that people want to stay in for 12 months, but also beyond.” He added: “It’s about developing a product that can grow with tenants, rather than almost being seen as a stepping stone.” Saunders, on the other hand, believes co-living will find it easier to transition under the bill than the traditional BTR sector. “We’re used to that transit of tenants. We’re used to offering flexible leases. Now, there’s going to be some changes. The way we do our pricing model is going to change very slightly because we charge more for a shorter lease versus a longer lease.  So, I think the whole market, probably the uncertainty equates to the result of a short-term increase in rent, potentially, almost perverse to what they want to achieve. “The idea that people are going to live in our buildings for three-four years is unlikely. It’s always going to be a more transient product because it suits a part of their life. I don’t think people are going to see themselves in our building in 10 years’ time. They see it as part of a journey through different living structures, so you must accept that. But most traditional BTR tenants only live there probably for 18 months-to-two years. And we’re very similar in our length of stay. So, co-living is better suited to adapt to these changes.” Next evolution As co-living continues to evolve and adapt to regulation and tenant pressures, Estates Gazette’s guests saw the next five years bringing in more “multifunctionality”. Ali Reza Ravanshad, founder and chief executive of Dandi, said: “Multifunctional components within a co-living room are going to be the future.  It’s something that we started about 20 years ago, and it’s paying dividends. Because when you don’t use the bed, you just push it, and it goes into the ceiling, and it becomes a light. The table should appear when you want to eat and disappear when you don’t. That’s the future of co-living, because space is what it is.” Philpot said that he predicts average tenancy will reach 15 months and bridge the gap between student and BTR. He said: “We will also start seeing the first secondary trades and that’s going to be interesting. Let’s assume base rates come in by a point you’ll see yields coming closer and split the gap between BTR and co-living.” “It’s just going to track the way BTR markets evolved,” added Nightingale. “More institutional players, institutional developers coming in and the weaker ones just filtering out a little bit. A few more local authorities in London, warming up to it, and realising that’s how things are getting built at the moment.” Saunders added: “There’s still a low number of fundings. We’re still a little way off getting the large amount of institutional long-term capital in the sector. I don’t think we’re at a stage where we’re a lot higher returning, development-orientated investors looking for an exit at the back end. “We need to start seeing those assets being sold in, and that’s probably still three or four years away. We’re on the path, and I think the momentum’s good, but it’s still going to take a little while to get there.” Tomasik concluded that one of the key things that’s locked in over the next three to five years is there are going to be thousands more operational assets, which means that the sector is going to have thousands of more data points on the tenant profile that live in co-living buildings and how they operate. “That’s going to impact the yield that the capital is going to see. We see it happening in the BTR space all the time where people say, ‘this BTR asset’s operated like a hotel, this BTR asset has operated like a student accommodation asset, this BTR asset is a BTR asset’, so you already see it on that space, and I think the same thing will happen under this co-living overall umbrella.” Main image © FlukeVisuals