A new type of purpose-built accommodation, co-living developments are growing increasingly popular amongst private renters. What do these co-living spaces offer tenants, and why should landlords consider them as an investment type?
What is co-living?
A co-living development is a new branch of purpose-built rental accommodation that works under the same principle as Build-to-Rent (BTR). It’s a growing form of communal living, popular with students and young professionals. The properties usually consist of furnished private bedrooms and furnished communal areas. These arrangements tend to be more sociable than traditional HMO arrangements.
Given rising tenant demand for all types of rental properties, these new developments could become a highly successful investment opportunity.
How popular are co-living developments with property investors?
More property investors and mortgage lenders are considering co-living developments due to the success of BTR schemes. Furthermore, purpose-built student accommodation acts as a model for how these developments would work.
These properties typically consist of apartments/flats at around 20-30 square metres. Given the smaller-sized units, co-living developments offer landlords the opportunity to earn high rental yields and cover the costs of any void periods with the income from the tenants in situ. This will give lenders plenty of confidence in the financial stability of these investment types.
How do lenders view co-living developments?
Co-living developments are a new area for landlords and mortgage lenders alike. While many lenders view these properties similarly to HMOs, if there is a change of use for the property, it may fall under commercial lending. As co-living becomes a more popular, established property investment type, lenders will become more comfortable in their offerings.
It’s important to note that, as it stands, many lenders are wary about financing these property types. Therefore, working with an expert will give you the best chance of securing the property finance you need for these investments. Our expert team thoroughly understands lender appetite for complex properties and has well-established working relationships with many top specialist lenders. We can offer you guidance and support as you navigate this emerging sector.
To discuss your property finance plans, get in touch with a member of our team here.
What types of tenants are interested in co-living developments?
The community living concept is central to co-living developments, which means they’re most popular with younger tenants. However, the lower rents on offer mean it’s most attractive to graduates and young professionals.
The developments typically host social events and include private gyms and a range of other amenities for tenants to take advantage of. There’s also the benefit of shorter tenancy agreements – three to six months – that give younger tenants on work placement schemes or probation periods more flexibility.
Where are co-living developments most successful?
Central city and urban locations are currently leading the way for co-living spaces. For landlords considering investing in areas such as London, Manchester, Sheffield, Glasgow, and Birmingham, a co-living property is a great place to start.
As co-living developments continue to mirror the growth of BTR schemes, less central locations, such as smaller towns with strong employment opportunities or even university towns, will be hotspots to focus on. Regional co-living developments may even help to drive growth in these areas.
What are the challenges with co-living developments?
The main challenge so far with these types of property developments is getting the right planning in place. Certain London boroughs even have a blanket ‘no-go’ policy in place, and as co-living does not yet have its own use class, there’s no set rule book to follow.
Despite this, lending appetite for co-living has increased over the years as the sector grows and the need to meet rising tenant demand continues. For more experienced landlords, this property type may offer an excellent opportunity to diversify your portfolio and boost your rental profits.
To discuss your property finance plans, get in touch with our team of experts on 0345 345 6788 or submit an enquiry here.
