Why is co-living in the spotlight?
Although Co-living in the UK is in its infancy, it is currently attracting a lot of interest in the property industry. The sector is seen as attractive because of the parallels which can be drawn with the student accommodation, build-to rent, hotels and co-working sectors which have all experienced exponential growth in the last 5-10 years. In this first of a series of blogs on co-living, CBRE will comment on the demand case for this latest bed sector concept, how it stacks up and the critical information you need to know to succeed in this new sector.
Growth in the number of Total UK Hotel Beds 2007-2018 (and future pipeline)
Why has Co-Living evolved?
The way people live is evolving. Changing patterns of work, rising loneliness, ageing, and the emergence of the sharing economy are making us think differently about the sorts of homes we want, and co-living is one potential solution.
A dichotomy currently exists: the number of people choosing to live alone is rising, but so are reported rates of loneliness. These trends are partly a result of the decline of the nuclear family unit. People are choosing not to get married or have children, and divorce rates are high. But people remain social beings. Like co-working before it, co-living offers people a way to be alone, together: providing people with a sense of community and belonging, without infringing on their independence and autonomy.
The definition of co-living is still evolving but is generally understood to be large scale purpose-built and professionally managed rental blocks, where small private living spaces are combined with extensive communal facilities.
While a lot of attention has been focused on the size of the individual units within new co-living developments, co-living is not just about this private physical space, but about establishing a community. As such, the provision of communal facilities and curating the experience of these spaces through a strong professional management offer should be at the heart of any new co-living development.
Without a strong professional management offer, shared housing can lose its appeal. Problems within the existing HMO and house-share sector mean it is often not a positive experience. 27% of private rented homes across the UK do not currently meet the Government’s Decent Homes Standards and complaints against private landlords have risen by nearly 50% since 2008 (with the Global Financial Crisis resulting in a more rapid increase in private renting).
Growth in Build to Rent Investment 2014 to 2018
Co-living looks to harness the positive aspects of shared housing whilst diminishing the negative aspects through good management and clearly defined private and communal spaces.
What is the Potential Demand Pool for Co-Living?
The potential demand pool for this product is substantial. Many students have become accustomed to purpose built and professionally managed accommodation, and their expectations once they have graduated will be shaped accordingly.
Growth in UK Purpose-built student accommodation 2008-2018
At the time of the 2011 Census, there were an estimated 427,000 HMOs across England, representing 15% of all households living in the private rented sector. An estimated 14% of all privately rented households were ‘other’ households, i.e. house shares, the equivalent of 677,000 households. This is not to mention, other private renters who may choose this type of accommodation if it were on offer.
In addition, the number of young adults living with their parents has reached an all-time high of 3.4 million with more than a quarter (26%) of people aged 20-34 still living at home.
It would, of course, be remiss not to mention the affordability constraints that have contributed to the emergence of co-living.
Globally, the increasing concentration of the world’s population within urban areas is creating ‘crises of affordability’ across a wide variety of different cities and the development of diverse housing solutions in response.
There is a chronic and well reported shortage of housing within London and across the other major cities of the UK, with current rates of housebuilding simply unable to keep pace with ever increasing demand. The imbalance between supply and demand has resulted in a long-run upward trend in house prices and rents.
Co-living is a cost-effective city centre housing solution, that achieves impressive densities. Although it may not appeal to some, the small size of the private units means they can be competitively priced compared with other housing options. The size of the individual units is compensated for by the amenity space offered: anything from resident’s lounges, shared kitchens, gyms and rooftop bars to swimming pools, spas and nightclubs. Economies of scale matter, with larger developments able to offer significantly more tenant amenity space.
The Swedish Example
Sweden has a higher proportion of one-person households than anywhere else in the world; accounting for just less than half (47%) of all households. In Stockholm this number rises to 60%. This is partly a result of the high-tax welfare system, which makes living alone an affordable option, but is equally rooted in the cultural premium placed on independence. In recent years communal living has also emerged in Sweden.
In Stockholm, at a development called Färdknäppen, 50 residents live communally in their own separate apartments (with kitchens and bathrooms) but with access to over 40,000 sq ft of communal space; that’s over 800 sq ft of space each - the size of a large two-bedroom apartment. This highlights that communal living isn’t just about affordability.
This development also counters the perception that co-living is for ‘renty-somethings’. All residents living at this development are aged between 40 - 100, most are empty nesters, and half are retired. People of all ages are genuinely looking for more meaningful ways to live together.
Co-living is just one product within a spectrum of emerging housing solutions that can help combat the housing crisis. Although it may not appeal to everyone, there is clearly a place for this product within the beds sector.
At CBRE we are committed to supporting the market and housing industry to create the right homes that people need. CBRE’s Build to Rent Consultancy team can provide specialist advice to support the demand case and rental levels for your proposed developments. CBRE also has capability to provide specialist design advice.