Article | Creating Resilience
How can Co-living help resolve the housing crisis? The investment case
October 16, 2024 5 Minute Read
Insights with urbanbubble
Part two of our three-article series, CBRE’s Kirsten Dyer spoke with Michael Howard, Founder & CEO of urbanbubble.
Read Part 2 HereCBRE recently hosted its inaugural UK Co-living Insight Night, bringing together industry leaders to share perspectives on the evolution of the market. Our series of articles continues the dialogue, considering how Co-living could help resolve the housing crisis, and comparing the emerging sector to first-generation UK PBSA investments.
Over £1.81bn has been invested into the UK Co-living sector to date, of which 68% has been in London. This year, £258m has been invested thus far, all of which have been forward-funded developments in London. However, 2023 saw increased levels of interest in regional rental hubs, such as Manchester and Sheffield, sparking a conversation over the viability of Co-living outside of London.
In 2010, UK PBSA transactions totalled £770m, 65% of which were in London and mostly development-led, much like Co-living today. These early PBSA investors were predominantly from the UK, U.S., Canada, and Singapore, and typically investment managers.
Similarly, investors are accessing the Co-living market principally through development, as operational stock is still extremely limited. Mirroring the early days of PBSA, first-movers with operational stock are UK investors, with Crosstree and DTZ Investors, who now have operational portfolios of 1,600 and 800 units, respectively. In addition, the first phase of Downing’s 1,300-unit development in Manchester recently completed. Other investors hail from the U.S. and Singapore, much as we saw in the early days of the PBSA market.
DTZ Investors is pleased to be managing the world’s first institutional property fund targeting purpose-built Co-living assets. We see Co-living as an innovative living option that better meets the needs of single renters, offering residents low hassle living in high quality self-contained studios with access to a strong in-built community. The continued success of our operational assets demonstrates the solid underlying build-to-rent fundamentals of the sector.
Looking at PBSA’s early years provides a potential indication of Co-living’s future growth trajectory. Supply and demand dynamics led to the early success of the PBSA investment market, attracting a broader range of investors and proving resilient in tighter lending conditions. For investors in first-generation PBSA, key considerations were planning policy restrictions, understanding affordable housing contributions and a lack of funding sources.
By 2011, CBRE estimated that there were around 12,000 direct-let PBSA beds in London alone, with a pipeline of a further 10,000 to be delivered in the capital before the end of 2013. The current operational Co-living stock in London is around 6,000 units, with a further 15,000 in the pipeline. Manchester (including Salford) currently has a pipeline of nearly 4,000 units, with Sheffield, Brighton, and Southampton following behind, emerging as regional focus points. This mirrors the geographic investment and development themes of the early PBSA market, though many in the market are now discussing if the success of Co-living in London can be replicated across the regions, with renter demographics a key part of understanding the micro-locational viability which we discussed in our first article of this series.
The sector is showing similarities to the emergence of the UK PBSA market, with growing demand from investors targeting the UK Living sectors. First-movers may experience an advantage as the market matures, planning regulations simplify, and operational stock comes to market. In the coming years, the Co-living market and product offering will evolve further, giving a clearer idea to what learnings the sector will take from early PBSA models. Ultimately, Co-living, either in London or the regions, adds valuable housing stock to the market, giving renters what they need: more choice.
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How can Co-living help resolve the housing crisis? Insights with urbanbubble
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