Jonathon Ivory takes part in Shoosmiths’ Co-Living roundtable

Education and co-operation are vital if the UK coliving sector is to flourish, says Barry McKeown of Shoosmiths.

The New Kid on the Block. That was the title of the British Property Federation’s (BPF) October 2023 report, examining coliving and its role as part of the build to rent (BTR) sector.

Since its publication, the model has increasingly come to the fore in discussions about the UK real estate industry, with many questioning its viability and long-term potential. To explore those views in more detail, Shoosmiths hosted a roundtable on coliving during MIPIM 2024, where experts from organisations such as Invesco, Turley, CBRE and Avison Young, alongside BPF chief executive, Melanie Leech, shared their views on the challenges and opportunities facing the model.

However, coliving isn’t just garnering the attention of the real estate industry.

• Inflection point

New data shows that £354 million was invested into the UK coliving sector in Q1 2024. This is more investment in three months than in any full year on record. These capital flows are an early indicator of the model’s shift from a nascent market to a more established asset class.

Investors and funders are increasingly engaging with the model, which the BPF defines as “imaginatively designed individual units with a floorspace that typically ranges from 16 to 27 square metres, with a bathroom and basic kitchen facilities and access to communal facilities including shared kitchens, living and working spaces”.

These developments can be amenity-rich. Existing developments feature fitness facilities and co-working spaces, with some also incorporating spas, saunas and swimming pools.

One key benefit is that the model is not tied to a specific need. Unlike purpose-built student accommodation for example, which only houses students, well-designed coliving schemes can be multi-generational. Combined with its flexibility and increased affordability, compared to other BTR models, coliving becomes a compelling residential option for many.

Despite these potential benefits, coliving is yet to properly take off across the UK and remains highly concentrated in London. As with multi-family before it, the model’s long-term success hinges on broader geographic adoption – not only in key cities such as Birmingham or Manchester, but also in regional hubs such as Milton Keynes, Derby or Newcastle.

So, as Jonathon Ivory, chief investment officer at Packaged Living, asked at the start of our discussion: “How big could the coliving sector really get?”

• Knowledge

Part of the answer to this question lies in overcoming a challenge that does not only face coliving specifically, but also the wider BTR sector – a lack of knowledge locally and nationally.

At a government level, this means changing the perception that BTR is a rival to the for-sale and traditional housebuilding markets. Policymakers must understand that coliving and other BTR models are complimentary residential options that should be embraced as part of the ultimate aim of building more quality, sustainable and mixed-tenure homes in the UK.

The focus on education must also be replicated at a market level.

While terms such as multi-family or coliving may resonate with those in the living sector and real estate industry, these are still relatively alien terms for most potential residents. More must, therefore, be done to inform and educate others about BTR and its different models.

For coliving, this begins with its fundamentals – emphasising that it is a multi-generational option for those wanting to become part of a new community of residents or for people whose priorities are based on high-quality amenities, lease flexibility or more affordability.

• Planning uncertainty

The importance of education was echoed by those taking part in the roundtable. It was also highlighted as a key component to addressing some of the more operational issues facing coliving, including uncertainty around how the model fits into current planning regulations.

Coliving remains a relatively new concept for planning. As a result, the model is being impacted by planning vagaries and regional policy differences. The lack of a dedicated planning classification poses a challenge for developers looking to bring forward schemes, while providing a level of risk and uncertainty that can deter funders and investors.

Progress is being made, however, with the Greater London Authority recently responding to feedback from the Second Generation Shared Living Consortium – a coalition of industry stakeholders – and revising its Large Scale Purpose Built Shared Living planning guidance.

Some of the changes made to the draft guidance include amending the recommended benchmarks detailing the provision of communal space within schemes, with the GLA stating, ‘the guidance has been amended to allow some flexibility in the recommended provision of this space where it is demonstrated that qualitatively good outcomes are achieved that satisfactorily meet the needs of residents’.

The revised guidance provides developers with a degree of flexibility, while reaffirming the importance of a design-led approach. It also brings much-needed planning certainty for residential models such as coliving, with the GLA showing a willingness to work with the industry and create a framework that is viable for developers, while ensuring that schemes are well-designed and accessible – providing good-quality accommodation for residents.

This type of clear and fair guidance must be replicated across other local planning authorities, as well as at a national level by incorporating guidance on coliving into the National Planning Policy Framework. This was also raised by the BPF in its 2023 coliving report, where it stated: “The NPPF should provide active support for coliving schemes and require local authorities to include an allocation for coliving schemes in their local plans.’

Breaking coliving out from the grey areas of the planning system is a vital step to increasing investment and development within the sector, while also expanding the model nationally.

• Evolution

Though there are challenges yet to be overcome, schemes are advancing, as explained by Precede Capital Partners’ David Jerrard during the discussion at MIPIM.

This follows Precede and QuadReal Property Group recently providing a £105.2 million whole-loan facility to a joint venture between BlackRock and Outpost Management.

The funding package is supporting the delivery of The Castle scheme in North Acton – a coliving development that will feature 462 self-contained studios in a 32-storey building, with amenities including a roof terrace, cinema, library, gym, coworking and dining spaces.

There are also an increasing number of coliving schemes coming online and being successfully operated, demonstrating that the model can work in practice in the UK.

The real estate industry must take learnings from these developments, recognising that coliving remains a relatively nascent market. The model will need to continue evolving, just as multi-family and single-family BTR have developed over recent years.

By focusing on education and collaborating with stakeholders, such as the government and local planning authorities, to overcome the remaining hurdles, the coliving sector can put itself in the best position possible to succeed. Investment demand is growing, as shown in Q1 2024, but it is only by working together now that the model’s full potential will be realised.