New market analysis from Excellion Capital, the boutique debt advisory and investment firm, reveals that with the UK's co-living sector growing at pace, savvy property investors should act now to take advantage of the immense opportunity being presented to them.
While both HMOs and co-living revolve around the concept of living with housemates – each person has their own bedroom and shared use of communal areas – co-living consists of a number of important differences that makes it a wholly distinct prospect for property investors.
The first difference is the property itself. While HMOs tend to be created by converting existing standard dwellings such as terraced homes, co-living units are often purpose built in a similar way to build-to-rent developments.
Also, while HMOs tend to be aimed at students and lower income workers who share their home through financial necessity, co-living is marketed as a lifestyle choice primarily targeting well-heeled young professionals and digital nomads.
The UK’s co-living market has reached a canter in recent years, with the latest industry data* showing that the number of co-living completions increased by 48.6% last year, resulting in a total of 3,267 units brought to the market. This is the highest annual completion total on record.
This increase was driven by a co-living explosion outside of London with regional completions recording an annual increase of 1508.2% to give a 2024 total of 2,155.
While London itself did see 1,112 completions in 2024, this marked an annual decline of -46.2%. This is not surprising because London has by far the most mature co-living sector.
Further proving the confidence that the UK has in the co-living sector, the country saw a total of 8,541 co-living planning permission applications submitted in 2024, 6,239 of which were granted permission, suggesting that the number of completions is going to keep increasing over the coming years.
Benefits of co-living for investors
Co-living properties tend to be finished to a particularly high standard, certainly compared to a standard HMO, which means they are able to command premium rent prices.
And while the high quality finish also means initial investment costs are higher than with an HMO, tenant satisfaction is subsequently much stronger which means retention is far greater. Investors also have the ability to increase their rental premium by providing tenants with additional on-site amenities such as a gym or co-working space.
Another benefit is the fact that co-living developments have the potential to create a strong brand that, if successful, means schemes can easily be replicated in other locations.
Finally, co-living properties do not suffer from the often negative perception that people, and planning authorities, have of HMOs.
The lender’s view of co-living
When it comes to financing co-living investments, lenders take a wide view on this growing corner of the rental sector and, by and large, view them in a highly favourable light. Here’s why:
Strong demand drivers
The demand drivers for co-living are particularly strong. With increased urbanisation in the UK, more and more young professionals are moving to cities. Combine this with a widespread affordability crisis and you’re left with a large pool of aspirational people looking for a high quality home but are being priced out of the 1-bed flat market.
There is a lot of news and discussion around the so-called loneliness epidemic – one of the most damaging long-term consequences of the COVID-19 pandemic and the increased digitisation of our lives which has left people looking at co-living with an increased desire for community living and personal connection.
Finally, the era of remote work and digital nomads is nowhere near coming to an end, and co-living provides high-quality homes with the flexibility of being able to move out as and when opportunities beckon you to other locations.
Low tenant turnover
As previously mentioned, the high quality properties, the strong glue of community, and the flexible leases common with co-living mean that void periods are going to be far lower than they are with HMOs or standard rental properties.
Premium rent boosters
Investors can give tenants additional amenities that further boost the price premium commanded by co-living properties. Everything is possible, from professional cleaning services and concierges, through to on-site cinema rooms, gyms, and swimming pools. Some investors even manage to strike partnerships with local shops and restaurants to offer discounts to their tenants. The more that is offered, the larger the rent premium can be.
High yields from efficient use of space
When planned well, co-living enables a highly efficient use of space where very little goes to waste. This means that investors can make profitable use of almost all of their square footage to further boost their returns.
Scalability
Co-living schemes can be big or small, and well-branded small schemes can be easily scaled up or repeated when the time is right. It’s also worth considering that the largest co-living schemes can often attract institutional capital.
Prime tenant demographic
The prime tenant demographic for co-living is young professionals aged 25-35 who are tech-savvy and well employed with a strong level of disposable income. As such, they are often happy to pay a premium in exchange for a high quality finish, flexibility, and access to high-end amenities.
Robert Sadler, Vice President of Real Estate at Excellion Capital, comments:
“Co-living is interesting in that the demand for it existed long before the concept was properly realised. Before co-living, shared living was thought to be the reserve of students and young people who needed the most affordable home possible until they had enough money to move elsewhere. HMOs continue to fit this brief perfectly, but they don’t allow for the people who crave the sociability of shared living but also want a high-spec premium home that matches their lifestyle and ambition.
"Now we’re seeing a significant increase in the number of investors opting to focus on co-living assets instead of HMOs in part because of the ways in which they can help build and diversify a valuable portfolio. For example, even a relatively small investor can build a portfolio of local co-living units, holding on to the assets for good yield returns and perhaps even spreading their co-living brand into new locations and cities to keep expanding their portfolio. At this point, co-living provides a really interesting exit strategy for investors because they can sell their portfolio of co-living assets to institutional investors.”
