Coliving Developers Are Finding Funders — But They May Have To Wait For Profits

Institutional investors are increasingly keen to fund new coliving developments, especially in London, attracted by the prospect of strong demand and limited supply — but the way they back schemes means it may be awhile before developers get their share of the upside. 

“One of the key changes that we've seen over the last few years in the funding space is a real importance on the developer putting in a meaningful equity contribution,” JLL Head of Colving Wilhelm Wrede told an audience of 200 at Bisnow’s UK Coliving Summit, held at the Leonardo Royal Hotel London Tower Bridge. 

“Any type of profit is typically being pushed to the back end and being linked to an IRR hurdle or something similar,” he added.

That stands in contrast to more traditional forward-funding structures, which are becoming increasingly rare.

The type of investor looking at backing development in the sector is expanding beyond the private equity firms like H.I.G. Capital and Crosstree that have been significant investors in the past few years.

Investors with a lower cost of capital are becoming increasingly interested, so long as the property is a best-in-class asset in a good location, ideally in London. 

The fact that coliving schemes typically have a lot size of £50M to £150M is appealing to first-time investors, Amro Partners Managing Director of UK Investment Tom Donnachie said. Holding investors back is the fact that few, if any, completed and operational UK coliving schemes have ever changed hands, and that means investors don’t know what their exit yield is going to be. 

One institutional investor that has put money into the sector is Swiss Life Asset Managers, which in 2024 formed a joint venture to build UK coliving assets with living specialist True North Management. 

That joint venture now has seven schemes with a gross development value of about £350M, True North founder Jill Ju told the audience. The company works with development partners and has used innovative structures to reduce the risk of the UK’s log-jammed planning and building safety system. 

“Because we take a longer-term viewpoint, we're able to look at opportunity from a build-to-hold perspective, as opposed to build-to-sell,” Ju said. “And that has allowed us to take a view on the risks that are currently present.”

A key risk for the past two years has been the prospect of development being held up in the gateway system of the Building Safety Regulator. 

Funders have been wary of committing funding to help schemes progress through the planning and BSR system, unsure of how long it might take. And many developers don’t have the balance sheet to take schemes through themselves, given it can cost millions of pounds. 

True North has been providing a type of loan to developers that gives it optionality over the level of risk it wants to take. It is complex, Ju said, but it can help the developer get through the BSR process without exposing True North too much to the risk of not getting that gateway approval.

“We all think it’s a low risk, but nonetheless, we don't want to take it,” Ju said.

Demand for the sector comes from a cohort of about 600,000 people in London to whom coliving might appeal, said Karl Tomusk, JLL associate of EMEA living research and strategy. And the number of people living alone or sharing with a nonfamily member is only growing.

There are only 7,000 to 8,000 coliving beds in the pipeline. 

London is a preferable destination to build compared with regional cities, panellists said, because while construction and operational costs are similar within and outside the capital, London commands significantly higher rents. The London Plan also offers greater planning certainty. 

And panellists said the sector is converging on an answer to its perennial question — the optimum size of a coliving room. 

“Where we are at the moment is 21 square metres [226 SF],” Re:shape Living partner, Development Robbie Nightingale said. 

“We feel that that is probably the optimal size, both from an institutional exit perspective and the ability to achieve scale of economics on the construction side of things.”