Billion-Pound Coliving Developer Says The Chancers Are Leaving The Sector

Like many new asset classes, coliving has seen its fair share of owners and developers trying to make a quick buck with badly thought-out schemes. 

But with more and more specialists building £1B-plus portfolios and institutions willing to provide them with capital, the sector's reputation for making bad buys stack up is fading. 

What it does need, however, is stabilised assets to trade, giving investors confidence about where pricing sits in relation to other residential asset classes. 

“Less and less are we getting approached by people saying, ‘Look, Miles, I've got a building in Bracknell. What do you think for coliving?’” Hub Head of Acquisitions Miles Keeley told the audience at Bisnow’s Future of UK Coliving: Investment and Innovation event, held at Victory Services Club. 

Hub has built up a pipeline of about 2,500 coliving beds over the past three years, with a potential end value of £1B, Keeley said. It is backed by investors, including Bridges Fund Management, which specialises in social impact investment. 

In the sector’s early years, many developers looked to coliving as a solution to regrettable buys. Buildings acquired for use as an office were converted to another living use like build-to-rent, Keeley said.

Due to its smaller rooms, densities and higher capital values per square foot, coliving offered the potential to improve the value of a scheme. In theory.

But such schemes were often badly designed and conceived or in the wrong location, panellists said. 

Sector specialists are now finding a model that more consistently works for tenants, planning authorities and financial backers. 

Rooms are typically 250 SF or more, rather than the 200 SF to 215 SF that might have been standard in early schemes. 

The sweet spot for the number of units is about 200 to 400, panellists said, noting that going any smaller prevents achieving economies of scale, while larger schemes become unwieldy. 

And though amenities are key to enticing people to live in smaller apartments than are typical in the BTR sector, developers are getting a better idea of what works and what doesn’t.

“We don't want 70-person saunas and those sort of things in our buildings,” Keeley said. “It has to really fit a mould for [institutional investors]. And the reason we talk about institutions is because they have the lowest cost of capital, and that drives development funding, affordable housing.”

Yields on coliving assets are about 50 to 75 basis points higher than for BTR assets, JLL associate for living capital markets Wilhelm Wrede said — a price discount that doesn't necessarily make sense given that coliving is a more affordable product. 

“That provides a huge opportunity for those early movers in the sector and those who are committed now,” he said. “The investment space is still dominated by private equity, but we are seeing more and more institutional capital look at the sector and get comfortable.”

The key next step for the industry will be stabilised assets being sold, either individually or in portfolios. That would mean there will be more certainty about what finished assets will sell for, providing guidance for developers about their end value.

“I think that's really important, because a lot of people don't know the value. What is the real kind of stabilised yield for these assets?” Keeley said.