Coliving investment gathers momentum

The global coliving sector is cementing its status among income-seeking investors with high profile deals.

October 24, 2019

The global coliving sector is cementing its status among income-seeking investors, with deals from the UK to Japan this month highlighting demand.

The rise of the sharing economy has helped drive coliving, where mostly young professionals live in rental accommodation with communal areas and a strong community ethos. Institutional investors, in turn, are being attracted by strong returns and the sector’s increasing maturity.

UK developer operator The Collective, backed by DTZ Investors, recently announced plans to raise up to £650 million (€740.8 billion) for a coliving fund. The fund will hold a portfolio of around six to 10 assets, with aims to attract £1 billion of investment over the next 10 years.

In Asia, coliving operator Hmlet recently launched in Japan with joint-venture partner Mitsubishi Estate. The Singapore-based firm, which is aiming for 10,000 rooms across Tokyo, Osaka and Nagoya over the next three years, is backed by Burda Principal Investments, as well as Sequoia India and The Reinventure Group.

With institutional investors aggressively seeking new ways to deploy capital, the coliving concept is now a credible proposition, says director of coliving capital markets at JLL, Richard Lustigman.

“Recent deals and the launch of new partnerships prove that the coliving sector can finally shake off any notion that it is simply a fad,” he says. “With young, fresh leaders on the operating side, it’s a sector which is now blossoming in its own right.”

In Europe, around 60 percent of the 23,000 beds coliving beds became operational in the past two years, according to JLL. And although the co-living sector is still in its early stages of development in most parts of Asia Pacific, JLL predicts that it will evolve to appeal to a larger and broader tenant base over time.

“The sector has transformed from affordable housing to a lifestyle choice over the past few years. We’ve seen 80 to 100 percent occupancy in the co-living properties in Hong Kong, which supports their underlying success,” says Cathie Chung, senior director of research at JLL in Hong Kong.

According to Alvin Leung, director of capital markets and a co-author of a research paper on co-living in the city, the market is seeing more operators who hold stakes in co-living assets rather than lease from third parties to save on rental costs.

Globally, funding of the sector has been on an upward path. The search by investors for yield across all asset classes is well-documented, Lustigman adds. But coliving in particular is appealing to investors looking for reliable income.

“Urbanization, the transient nature of young professionals, and downsizing are all long-term, evergreen trends that institutional investors with an eye on the medium to long-term, appreciate.”

Bigger is better

Scale is also a factor in satisfying investor appetite.

“The sector is moving away from the redevelopment of existing buildings to purpose-built institutional scale product with a greater average bed count,” Lustigman explains. “That means the sector is rapidly becoming more investable.”

As more institutional capital enters the coliving sector, Lustigman says the product will also improve.

“Competition between schemes for both residents – as well as for future investors – will drive coliving up a notch,” he says. “It’s something we’ve seen happen in the wider private-rented sector, where professionalization has really been the differentiator for tenants seeking responsible full-time, rather than part-time landlords.”

Lustigman believes coliving as a concept will spread to other residential sectors, such as senior living and student housing.“For now, coliving has really been about young professionals,” he says. “How soon that evolves will be determined both by demand and greater investment over the medium to long term.”