Co-living is a relatively modern trend that can benefit landlords and property investors. An increasingly popular market sector, it gathered pace in the UK in the post-pandemic economic and social climate.
Many factors are playing a part in the current co-living boom. The fundamental changes in living arrangements for financial reasons and the working habits of consumers are driving the sector, according to research.
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What is co-living?
The term describes a purpose-built style of residential property, mainly comprising compact self-contained studio apartments similar to those prevalent in the student accommodation sector.
Co-living blocks of flats are professionally managed, providing a high degree of amenity space, often including dining and living areas, outside spaces, co-working and gyms.
The idea is that the tenants will spend less time in their own smaller personal space and more in the central communal areas. This creates a community feel, enabling everyone to take advantage of living in a pleasant prime location, while paying rent they can afford.
What sorts of tenants does co-living attract?
Co-living schemes attract various age demographics. A lot of the schemes focus on graduates, young professionals and mature students, creating a good mix of like-minded renters. However, other schemes target sectors such as temporary international residents, active retirees or nomadic business professionals.
This type of property is usually found in prime UK city locations with London, Sheffield and Manchester all enjoying a rise in co-living schemes. Many are coming to fruition or are under development in most regions.
Why is co-living becoming increasingly popular?
In financial terms, co-living makes sense, as house prices are rising in comparison to average salaries. This has left many people, especially the younger generation and first-time buyers, struggling to buy a property in an urban area near amenities and their workplace.
First-time buyer deposits have risen to a record high, with estate agents indicating the chance of home ownership is becoming increasingly limited. Those who can receive financial aid from the “bank of mum and dad” may get a foot on the housing ladder. However, potential buyers struggling to save a deposit and get a mortgage are increasingly turning to alternatives.
The private rented sector has grown by almost two million additional households in the UK, compared with 2011 statistics. There has been an increase from 3.9 million households to 5.9 million. In London alone, an additional 300,000 renters have joined the market, bringing the total to 1.1 million. London has been the pioneer of co-living schemes, but other regional cities UK-wide are catching up.
Rental rates in co-living schemes tend to be 20% lower than the average cost in other private rented sector accommodation. Although this varies according to the amenities and room sizes on offer, it is the average amount. With bills included in the rent, it becomes the most cost-effective option for many tenants, making it an attractive option.
Increase in remote working
In addition, the work from home culture that grew as a result of the Covid lockdowns has continued. The trend for remote working means people are prioritising the need for additional working spaces close to, or even within, their home.
According to data covering September 2022 to January 2023, compiled by the Office for National Statistics, 44% of working adults either worked totally from home, or used a hybrid work model, dividing their time between a home office and travelling to their workplace, during this period.
Self-employed workers were the biggest group embracing the new working practices that were formed during the pandemic in 2020. London has the highest number of hybrid workers in Britain.
Sense of community combats loneliness
In post-lockdown UK, there has been a greater focus on mental health, as people have admitted to often feeling lonely and depressed while isolated at home in 2020. Reducing loneliness and improving mental wellbeing has been the aim.
A sense of community is at the heart of the co-living sector. Properties create a community and relationships by having like-minded tenants living together. Renters find it helpful when there’s a ready-made community that they can join without hassle.
Lifestyle choices can be enhanced, as the facilities and events provided by many of the co-living schemes are a big attraction. Residents can attend community events such as onsite yoga and sports sessions, cooking and dining clubs and even a residents’ cinema.
The sector suits the more “nomadic” population, where people who can’t afford to buy a home can be generally more flexible. If they wish to move, for work or personal reasons, they aren’t tied to one location.
Flexible rental arrangements and short-term lets are proving increasingly popular, as tenants can move easily. This type of property comes fully furnished, so there’s no hassle when it comes to moving.
Benefits of co-living for landlords and property investors
The cost of purchasing a traditional buy-to-let property suitable for baby boomers or professionals in the city can be costly. It is usually cheaper to buy a student property.
Co-living offers property developers the best of both worlds. You have the financial benefits of professional tenants with a higher income. It also means you don’t have to deal with the negative aspects of renting to students, such as a higher risk of damage to your property and furniture.
In the UK today, private renters are spending an average of 35% of their income on rent. Typically, graduates earn between £20,000 and £40,000 from their first job, so they have more money to spend on rent.
In London, rentals for co-living space start at around £1,100 per month. Outside London, the cost starts at an average of £900 per month. This means a landlord can make around £4,400 a month from renting out a four-bedroom co-living property to the right tenants. This is an excellent ROI, considering some student properties rake in as little as £350 for the landlord.
Anything above £4,000 a month is far more than you’d get for an average four-bedroom house being rented to one household. The more bedrooms you have, the more money you can make.
Furnishing a co-living property
When it comes to co-living furniture, it need not be as expensive as you think to furnish your whole property, thanks to the availability of furniture packages that are both convenient and cost-effective for HMOs.
Another benefit of providing co-living spaces for professional people is that they expect higher specifications than the average student. They are more than willing to pay extra for this – and also to look after your property. Those either working from home, or in the city, don’t want a chaotic lifestyle and are usually focused on furthering their career, so there won’t be any wild student parties.
You can provide room cleaning services in addition, weekly or fortnightly, if the tenants require it, at a small extra charge. Most tenants will welcome this service, so not only are you earning some extra money, but you’re also able to carry out a check on your property on a regular basis to make sure it stays in good shape.
If you’ve never thought of renting out co-living spaces before, now could be the time to look into it!