Co-living is not a new trend, but merely the re-envisioning of an old one. A living environment whereby tenants share resources and space in exchange for lower costs and cultural commonalities harkens back to socially-minded communes of the 1960’s, and further still to the boarding houses of the 19th Century. In the modern era, co-living has been defined as purpose-built and managed developments that include a combination of personal and shared amenity space.
Co-living has developed as a natural progression from co-working, both responding to similar demographic forces. Both are an answer to younger generations’ desire for affordable space in global cities that offers flexibility. Yet while co-working has gained widespread institutional acceptance and integration, co-living has, until now, remained the domain of niche operators.
For real estate investors, it can be difficult to determine when an asset class has sufficient demand to transition from passing fad to longer-term trend. Identified drivers of demand for flexible living space include urbanization, the changing nature of work, growth in demand for access over ownership of property and affordability of traditional residential space. Each of these factors should be explored in detail to identify the likely longevity of demand for co-living real estate.
The measure of co-living opportunities varies considerably across the globe. The most dynamic region in the world for co-living is Asia, whilst the sector remains fledgling in many other regions. Part of the challenge posed to real estate investors is how best to create, operate and execute co-living facilities to meet the needs and wants of the target demographic while still achieving satisfactory returns. Yet by its very nature, where co-living is most needed is where it may be the costliest to create. Much of the co-living stock today has been the result of existing building conversions. Yet conversions can be a lengthy and challenging process – many cities’ regulations regarding what constitutes a legal housing unit can hinder redevelopment.
Limited data exists on the long-term performance of co-living assets. As such investors must consider whether a fragmented, early-stage model presents an opportunity to gain a first-mover advantage and scale for global operators. There may prove an added benefit of cap rate compression as institutional demand increases.
In this whitepaper, we seek to connect the dots between co-living and more established property types and make the case for greater institutional acceptance, as well as define and explore the demand profile of this new asset class, leveraging examples primarily from Asia Pacific, where the asset class is more mature, as well as the UK.
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