Savills projects rapid growth of UK Co-living: sector to see £540m of deals in H1 2022, the firm says

In their latest UK Co-Living Spotlight, the firm estimates that the sector has a potential core target market of 725,000 residents, including almost 160,000 in London alone - this is compared with a total of just 24,000 operational and pipeline units, demonstrating the scale of the opportunity.

Co-living combines individual studio bedroom units and onsite communal facilities such as gyms, co-working spaces, resident lounges and cinemas, professionally managed and with an all-inclusive monthly rent that can be around 20% lower than an equivalent BtR studio, once additional bills are accounted for.

While the amount of operational stock is currently limited given the nascency of the sector in the UK, a total of £540 million of transactions are due to complete in the first half of 2022 alone: clear evidence of the strength of investor demand and confidence in the growth potential of the sector.

"We see no end to the rising demand for private rented housing in the UK, a sector which grew by almost two million households, to 5.9 million, between 2011 and 2019," says Paul Wellman, Associate Director, Savills research.

James Hanmer, Head of UK PBSA Investment and Co-living at Savills, adds: "There is an increasing desire by many to live in urban locations, close to jobs and in schemes that offer a strong sense of community and high quality amenities. This underpins our belief that Co-living is now set to follow Multifamily / Build to Rent and the Purpose Built Student Accommodation sectors, in becoming an increasingly large part of the UK rental market.

"We are now seeing the debt market become increasingly comfortable with Co-living and the pool of lenders is widening. The Savills Capital Advisors team expects to have secured around £500 million of debt for the sector by the end of 2022", said Morgan Scale, Associate Director, Savills Capital Advisors.

Target market calculation: As part of its potential 'core target market' calculation, Savills looked at the age profile of renters in the two largest operational Co-living schemes, The Collective Old Oak and The Collective Canary Wharf, where a significant majority (79%) are aged 18 to 35.

Savills then calculated that there are 725,000 people who are: aged between 18-35, currently live in private rented accommodation, are in households without children, and are within one of four key demographic groups. These groups have a high propensity to live in shared accommodation and are able to afford a median one-bedroom rent in their local authority if spending no more than 35% of their gross income on rent.

London and the regional markets: London has led the way in the emergence of Co-living, but over the past three years 60% of units submitted for planning are for outside the capital. The total operational and future pipeline now stands at 24,000 units, split 50/50 between the regions and London. Some of the regional markets with the largest pipelines include Birmingham, Manchester, Sheffield and Glasgow.

Exploding the myths: Rental values in Co-living schemes are often mistakenly thought to be at a premium to the wider residential market and therefore only available to higher earners.

However, while tenants renting privately traditionally have to pay council tax, utilities, broadband and other bills separately from / on top of their monthly rent, with Co-living a single rental payment includes all these costs.

Co-living rents can be equivalent to a c. 20% discount to the full cost of a studio in the BtR market, once all the extra costs like utility bills are factored in.

"For many tenants, having high quality amenities within their building, with everything included in one simple monthly rental payment, more than compensates for a smaller private living space and makes Co-living a compelling proposition," concludes Wellman.