London And Dublin Lead In Co-Living Demand, But Supply Lags

The UK has emerged as the most attractive co-living market in Europe, followed by Ireland in fourth — but supply in this growing residential sector remains well below requirements, and plans for London sit at a fraction of future demand.

Two new reports have underlined the potential of the co-living sector, with Cushman & Wakefield’s inaugural survey of institutional investors revealing that 80% of investors polled expect their investment in the sector to increase over the next five years and that 22% of all real estate investment volumes in Europe now come from the living sector, up from 6% in 2007.

However, a separate report from real estate adviser and Newmark company Gerald Eve has revealed that while London’s potential market for this accommodation category is 600,000 beds, supply is forecast to reach just 11,500 beds by 2027.

“Our research underscores co-living’s potential as a resilient and adaptable housing model in the face of rapidly changing urban lifestyles and housing needs,” Gerald Eve co-living consultant Jo Winchester said in a statement. “The sector is clearly experiencing dynamic growth, offering new living solutions that cater to a diverse urban population.” 

The new analysis comes just ahead of the UK’s Co-Living Summit by Bisnow, which takes place 23 April at The Royal Horseguards Hotel & One Whitehall Place. The event will explore the future of investment trends, the development pipeline, amenities and leasing trends.

Gerald Eve’s survey found that within London Zones 2 and 3, the investment yield for existing co-living stock ranges from 4% to 4.75%, but recent prime funding deals in London are showing yields of between 4.35% and 4.5%. 

In London, the sector was boosted at the start of March when the Greater London Authority took industry feedback into account when revising its draft large-scale purpose-built shared living planning guidance after its initial draft, published two years ago, attracted criticism for being too rigid.

Updated space standards provide greater flexibility regarding the provision of communal space, especially as co-living caters increasingly to the needs of single renters. Students represent between 10% and 96% of occupants, depending on location, but while London has a student population or potential market of 370,000 students, there are just 100,000 purpose-built student accommodation beds, according to Gerald Eve.

Despite the supply shortfall, several new co-living schemes are progressing. Real estate fund manager Moorfield Group completed construction of its The Apiary co-living development in Ealing, consisting of 81 studio apartments, forward-funded by Moorfield’s fifth value-add fund, Moorfield Real Estate Fund V. 

“There remains a structural under-supply of high-quality homes for rent, especially in major cities like London, and we see harnessing institutional capital into residential investment as being key to solving the housing crisis,” Moorfield Group Head of Operational Asset Management Heiko Figge said of the project in a statement. 

Late last year, Mitheridge Capital Management teamed up with London co-living developer Halcyon Development Partners to develop a site in Hackney Wick that will be developed as 339 co-living units alongside office space, a new restaurant and public areas.

The gross development value of the project is expected to be more than £100M, with debt provided by PineBridge Benson Elliot.

“Co-living is an emerging asset class which provides much-needed housing units in major cities such as London, where there is persistent high demand for affordable, quality living spaces,” PineBridge Benson Elliot Managing Director George MacKinnon said in a statement.

In February, a £7.5M bridge loan was approved by Recognise Bank to support a co-living project in Canary Wharf by Olympian Homes, following the signing of a long leasehold agreement. Plans involve the demolition of the current office block, converting the site into a 46-storey co-living development with 795 units and amenities including a lounge, cinema room, fitness studio and gym.

Meanwhile, developer HUB and sustainable impact investor Bridges Fund Management have signed an £88M forward-funding deal with Singaporean real estate developer City Developments Ltd to deliver a mixed-tenure scheme that will include co-living and affordable homes called Yardhouse in Wood Lane, west London.

This will deliver 209 co-living homes alongside amenity spaces, two roof terraces and 60 affordable homes for single women through a partnership with specialist housing association Women’s Pioneer Housing, plus a new head office for WPH.

The growth potential is continentwide. Investment in the European, Middle East and African living sector has the potential to reach €70B to €85B per annum, according to Cushman & Wakefield’s report, which was based on polling institutional investors responsible for managing over €1.4T in global commercial real estate assets, the adviser said.

It revealed optimism for growth in the sector, driven by demographic changes, a lack of supply and societal trends, which was reflected in 2023 investment volumes, with 22% of all real estate transactions in Europe coming in the living sector, up from just 6% in 2007.

The survey also found that nearly 90% of investors view demographics as a key driver for growth in demand, with factors such as affordability, changing home ownership trends and increasing numbers of international students contributing.

“It was undoubtedly a challenging year for the living sector in 2023, yet we’re buoyed to see optimism from investors,” Cushman & Wakefield Head of EMEA Living Research and Insight Tom McCabe said of the findings in a statement.

“The sector is firmly cemented as an essential component of a well-balanced commercial real estate portfolio, and investor appetite for the stability and demographics-driven growth it offers continues to expand.” 

Just as in London, 19% of responding investors were drawn to Ireland’s economic growth outlook. Investors also liked its favourable demographics (32%) and the tight supply and demand picture in Ireland’s living markets (49%), C&W said. Despite this, investors said rent caps — cited by more than half of respondents — plus political interference (14%) and planning issues (12%) are obstacles.

Niche Living completed Ireland’s first co-living development, designed by HKR Architects, in May 2023 with 204 fully serviced studios for Niche Living Dun Laoghaire on Eblana Avenue in Dublin.

“It is testament to strong demographic fundamentals that Ireland emerges as a frontrunner for living investment beyond the core European market, with a strong economic outlook,” McCabe said. “The economic picture will likely remain unsettled, however just over half of respondents indicated interest rates would stabilise by the second quarter of this year, in turn supporting a recovery in capital values.”