Co-living market predictions for 2023

Predictions for the co-living market in 2023 by Built Asset Management’s Co-Founder and Director, plus a look back on 2022.

Co-living room. Built Asset Management provides its predictions for the co-living market in 2023 | BTR News
Co-living room. Built Asset Management provides its predictions for the co-living market in 2023.

2022 was a crazy year in the bills-inclusive co-living market. A broad spectrum return to city living paired with slowed production, as well many landlords leaving the PRS, has seen an aggressive re-balance of the supply and demand curve.

By Alex Gibbs, Co-Founder and Director, Built Asset Management

During 2022, availability of shared accommodation to rent fell to its lowest levels since 2012, while demand for such accommodation has been setting record highs. In October 2022, data showed that there were seven renters looking for a room for a every room available. These fundamentals alone created a significant firming up in price as 2022 progressed. A stark contrast to the previous year, during which pricing in some areas was still recovering to pre-pandemic levels.

A drastically increased cost of provision for co-living operators because of the ongoing energy crisis, and more recently the hike in interest rates, has further exacerbated this trend. Our data shows that the costs of provision of energy across a UK based co-living portfolio has roughly doubled since January 2022. On interest rates, this past year saw the costs of a two-year fixed buy-to-let mortgage rise by circa 70% when comparing September of 2022 with December of 2021. This increased cost being borne by landlords, investors and operators exerts further upward pressure on rental prices.

These challenges, in combination with continued fiscal and legislative punishment, has also led to the decision by many landlords to exit the sector. This in turn causes further decreases in supply and has created something of a vicious loop for renters in search of affordable accommodation.

Looking ahead to this year, we are forecasting continued increases in costs of provision for the co-living sector. It is now known (subject to an unforeseen u-turn by whoever happens to be in the key cabinet positions in any given week), that the cost of energy provision will increase in April by a further 20-40% (depending on the size of building and therefore the significance of the loss of the £400 energy bills discount). The data also shows that the cost of debt burden will continue to bite as 2023 unfolds and increasing numbers of landlords and investors emerge from fixed terms and see their interest rates rise.

The really positive news for the sector, however, when looking to the remainder of 2023 and beyond, is the overwhelming strength of demand for high quality co-living accommodation. In the wake of Covid, the market is telling anyone willing to listen that there is a very strong need for rental accommodation in major cities that provides a flexible, fuss-free living arrangement for young professionals who are not looking to spend 12 months trying to transact a property purchase and invest half their life savings into furniture.

What the co-living sector needs is for government to realise this and take some steps to unburden the providers to enable growth and improvement of provision in the sector, thereby driving more competitive pricing and better standards for the end user.