And the agency says a step change in delivery comes as the market enters a new phase, with an increasing volume of institutional capital targeting the sector. Since 2020, investors have spent nearly £1 billion funding or acquiring co-living developments.
According to Knight Frank’s 2023 UK Living Sector Survey, which captured the views of leading institutional investors who currently own more than £75 billion in Co Living sector assets across the UK, 45% plan to have invested in co-living by 2028, up from 32% of respondents who had already invested. It suggests that existing investors view co-living as a means to capture a more varied tenant base and diversify their portfolio in BTR in terms of property and tenant type.
Most of the co-living development to date has been delivered in London. Some 74% of co-living development has been delivered in the capital with 6,722 units under construction or with full planning permission granted located outside of London, led by regional cities.
Manchester, Liverpool, Sheffield and Birmingham lead the way thanks to their large and growing populations of young professionals, strong graduate retention rates and expanding employment markets which make them viable locations for developers and investors.
However, the pipeline confirms that co-living isn’t just workable in major cities, with schemes coming forward in smaller markets such as Woking, Reading and Guildford, a trend Knight Frank expects will continue as the sector grows. In total, 33 local authorities in the UK have a co-living scheme either complete, under construction or with planning permission granted.
As co-living development becomes more geographically diverse, delivery rates will continue to increase. On average, 865 co-living units have been delivered per year since 2016. Based on the current pipeline of consented schemes, delivery could increase to 3,430 units per year from 2024 to 2027.
The agency’s analysis shows that 72% of tenants who live in co-living schemes are aged between 26 and 40, for example, with the largest proportion aged
between 31 and 35 (35%). The data suggests the sector is meeting the housing needs of a wide demographic, beyond just the students and post-graduates who made up most of the residents in earlier schemes.
Oliver Heywood, a partner in Knight Frank’s Residential Investments team, says: “The macro drivers for the sector are well-documented and have underpinned sector growth in recent years. They include a clear and deepening supply/demand imbalance in towns and cities across the country, increasing population, urbanisation, decreasing household sizes, and shifting consumer attitudes.
“Affordability constraints for potential first-time buyers have also increased the demand for good quality rental housing and supported rental growth.”
And his colleague Ewa Scott adds: “From a valuation perspective, we’re seeing increasing confidence in the sector among lenders. This is underpinned by robust fundamentals such as strong occupancy rates, premium rental yields compared to traditional residential assets, and the sector’s resilience during economic fluctuations.”