The collapse of co-living pioneer The Collective raised question marks over the future of co-living as an asset class. Yet just as WeWork’s dramatic fall from grace hasn’t spelled the end of co-working, neither will The Collective’s demise see the end of co-living.
Having lived at The Collective Old Oak Common, I experienced first hand the benefits of living in a co-living community, from the all-inclusive approach to service, plentiful amenity space and regular social events that tried to encourage residents to see each other not just as neighbours but as friends.
More importantly, the fundamentals that have driven the growth of co-living not just in the UK but globally are here to stay.
First is worsening housing affordability in major world cities such as London. Covid-19 led to a global house price boom, driven by a glut of savings, favourable government policies and flight to safe assets. For those already on the property ladder, this means they are sitting on an even bigger pot of gold. For those looking to buy, home ownership is even farther out of reach.
Housing affordability issues in major cities are unlikely to disappear any time soon. Restrictive planning systems and mobilised Nimbyism will continue to limit the supply of new homes, and while interest rates are slowly rising, the era of ultra-cheap and easy money – that has seen billions into residential assets – is far from behind us.
Yet while they may be increasingly expensive places to live, leading metropolises such as London will continue to draw talent from across the world. Pandemic-era warnings of deurbanisation have now been fully debunked. Hard pull factors such as plentiful employment opportunities along with softer fundamentals such as rich culture, leisure and art scenes will mean people will always want to live in cities like London.
Unable to buy, they need somewhere to rent. Yet the traditional private rented sector in the UK is a mixed bag to say the least, with the quality of accommodation and service you receive from a private amateur landlord being hugely variable.
That said, not everyone even necessarily wants to buy. Changing lifestyles and attitudes to work mean people are less committed to buying somewhere and settling down. As they say, a mortgage can be as much a burden as a bonus.
However, renters’ demands have changed. Increasingly they value sustainability, wellbeing, experience and community. These are not things you will get in a buy-to-let flat.
The rapidly growing build-to-rent sector offers an attractive alternative to the mainstream PRS. BTR investors and operators promise high-quality, new-build homes that come with a range of add-on services and extras, such as access to amenity spaces, as well as on-site professional management. Yet the rental premiums charged by many BTR landlords mean for many renters it is an expensive and not necessarily affordable option.
This is where co-living fits in. By offering more compact homes, co-living can provide a more affordable rental option while still giving residents access to a ton of communal spaces, extra services and a regular calendar of social events to help engender a genuine sense of community.
With the backing of Oaktree Capital, we’re looking to create an initial best-in-class portfolio of up to £1bn GDV in central London before expanding in other European cities where the underlying market fundamentals also support the growth of co-living.
Our recently approved Wandsworth scheme will provide 213 high-quality spacious studio apartments alongside a range of internal and external amenity spaces and incorporates a number of wellbeing-focused design features such as green walls.
It is not just consumer interest in co-living we expect to grow post-pandemic. Investors are on the hunt for assets that will provide long-term resilient income streams, which co-living, like BTR, does.
Looking at the UK specifically, there are potential challenges to the sector’s growth, chiefly around planning. But as with any sector, there are barriers to growth and businesses go under for all sorts of reasons. So co-living is here to stay for good – and will become a vital part of cities’ future housing mix.
Sarah Christie is co-chief executive of Balance Out Living