By now we’re all familiar with the concept of co-working; WeWork is a household name, and new providers of modern and collaborative office space are appearing at pace. Hot on the heels of the success of the co-working concept is the rise of co-living, a hotel/apartment hybrid where residents enjoy a private en-suite bedroom but share varying degrees of communal space which may include kitchens, living areas and other facilities. Similar to co-working, co-living is predominantly a city concept, particularly popular with millennials moving to new cities for employment and looking for short to medium term living solutions that offer opportunities to connect with like-minded people. Co-living should be distinguished from co-housing, where shared space tends to be limited to gardens and entertaining space and where homes are ordinarily purchased by residents for longer term benefit.
Is co-living the same as multi-family/build-to rent?
The terms “multi-family”, “co-living” and “build-to-rent” are often used interchangeably and/or confused. Yes, there are similarities and overlaps between these concepts; for example, new co-living developments are usually built with the purpose of renting and might therefore be referred to as build-to-rent developments (in a general sense if not pursuant to specific planning policy), but build-to-rent schemes tend to be made up of larger individual apartments with less or no focus on communal space. Multi-family is a term which was initially used in the US for what would be referred to in the UK as build-to-rent, but now the terms multi-family and co-living are being used interchangeably. Each of the terms are evolving and whether one is the same as the other will depend on which iteration of the concept is being referred to. It is therefore important to look at the substance of the development, rather than rely on any particular label given to it.
Who are the players?
The last few years have seen a number of new entrants onto the co-living scene. To name a few:
> The Collective, which recently launched its second co-living scheme in Canary Wharf;
> WeLive, WeWork is rebranding as “The We Company”, with an active residential arm in New York and Washington, D.C. and anticipated expansion into other US cities and India this year;
> Common, New York based and launched in 2015, Common is now one of the major operators of co-living in the US;
> StarCity, another US startup currently undergoing its largest co-living project in San Francisco;
> Medici Living Group who joined forces with Corestate Capital in Germany at the end of last year to build a €1bn co-living portfolio across Europe.
The question for the real estate market is whether the new concept of co-living is a genuine emerging category of real estate development? A number of factors would support that suggestion, including:
> Lack of appetite and/or financial means to own property outright – the number of UK residents renting properties rather than buying them continues to increase, with greater value being placed on experience over ownership and greater mobility of the workforce generally;
> Investor appeal – with the decline of retail premises as an attractive investment opportunity, it may be that co-living premises further opens up the residential investment market as a source of steady long-term income for investors (as opposed to relying on capital value growth), if operating costs can be kept at a sensible level and residential leases become longer than the usual 12 months;
> Housing crisis – demand for homes far exceeds supply, and accommodation is therefore needed to fill the gap (even for those whose aspirations of home ownership are achievable), and government policy appears to be shifting to support developments which contribute towards a solution. There is also a real opportunity here for developers and the wider property industry to shake off the bad guy persona and show that they and it can work with communities to deliver what people are looking for and what society needs, both currently and for future generations.
On the other hand, there are limitations:
> Finance – due to the relatively new nature of the concept (in the UK at least), it is difficult to know yet whether finance will be readily available, particularly given the lack of track record demonstrating that these developments will hold their value;
(a) Approval – obtaining planning permission for co-living schemes has been problematic in some cases, especially in terms of categorising which use class co-living schemes fall into and whether the scheme satisfies the local planning authority’s minimum space requirements. If the size of the co-living units needed to make the scheme financially viable is too small, the scheme could fall short of the local planning authority’s minimum space requirements. For the time being it seems that developers are at the mercy of local planning authority preferences, even if any relevant minimum space requirements can be met. However, the planning system is evolving to accommodate build-to-rent and co-living developments, so it is likely that these limitations will carry less relevance as time goes on and as local planning authorities gain experience in this space;
(b) Conditionality – although it is considered that co-living contributes to the affordability of housing, it is not considered a suitable form of affordable housing as it generally consists of bedrooms rather than housing units. It is for this reason that a financial contribution will be required towards off-site affordable housing. This may undermine the financial viability of co-living developments. For example, the Draft London Plan sets out that co-living developments will need to provide a contribution equivalent to 35% of units to be provided at a discount of 50% of market rent, towards off-site affordable housing – it’s possible that this could seriously deter developers from jumping into this arena.
> Availability of space – the ability to incorporate multiple types of communal areas including retail and co-working space within a co-living development would seem ideal (and is what sets these developments apart from what has historically been on offer), but the availability of land space in urban areas where co-living is thought to have the greatest chance of success is limited. That said, if co-living is about thinking differently about how we use and develop space, a move away from traditional development of, for example, shopping centres and the high street might free up space for co-living developments which incorporate retail use, albeit to a lesser extent.
What was once considered a slightly odd concept likened to student accommodation for grown-ups is now being viewed as a genuine opportunity, for developers and investors alike. With co-working paving the way, the potential for co-living is arguably even greater, not least because of the comparative size of the residential real estate market and the fact that co-living developments can themselves include an element of co-working space. And it seems it’s not just millennials who are in the market for a new approach to housing; at the end of 2016 Pollard Thomas Edwards completed the UK’s first cohousing project for senior citizens in north London, so perhaps co-living will also become popular with ageing “baby boomers” who do not find the concept of a traditional retirement facility particularly appealing. Either way, co-living may currently be in it’s infancy, but it is certainly one to watch!