London co-living market: 2020 learnings and 2021 outlook

Built Asset Management delve into 2020 learnings from the London co-living market and provide an outlook for the coming year.

Bruno Martins - Built Asset Management | BTR News

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

During the period between late March 2020 to late May 2020, the industry was forced to close down by government legislation. Clearly this had a short, sharp detrimental effect on the sector as young professionals temporarily left London for a variety of reasons. Our data from Built Asset Management shows that the most commonly cited reasons for vacating in the early stages of the pandemic included: a desire to leave the densely populated built up environment, a desire to be with family elsewhere in the UK or abroad, or a lack of need to be close to a place of work. Accompanying that sharp outflow of customers, the industry suffered a simultaneous inability to refill vacant units, due to government legislation.

Alex Gibbs, Co-Founder and Director, Built Asset Management – 12.8.20. Photo © Sheila Burnett.

The industry re-opened in May, however, the impact of Covid-19 on London’s co-living renters remained significant. As employer confidence dwindled and companies faced financial hardship, a proportion of young professionals sadly lost their jobs (data shows that, statistically, under 24s are at the greatest risk of losing their incomes as a result of the pandemic). Additionally, government advice has broadly remained to work from home where possible and it has been made clear that this will be the case until at least April 2021. This meant that a proportion of London’s young professionals chose to work from family homes outside London for six months in order to save money. These factors caused a reduced influx of young professionals into London for 2020 and an increased migration out of the city.

As with any market, where there is (albeit temporary) reduced demand and increased supply, the co-living market saw a short-term softening in price during the second half of 2020. Landlords and investors can, however, take solace in the fact that our data shows that for the period during which the government advice briefly returned to ‘go to work’ we saw enquiry rates double with pricing strengthening up as a result.

2021 co-living market outlook

Whilst it’s certainly excellent news for the industry that a March-style cease trade hasn’t been imposed on the property market at the outset of 2021 (despite national restrictions coming into force), we cannot ignore the possibility that this could change in the coming weeks. This makes forecasting activity for the early part of this year incredibly difficult.

Even without tougher measures, we need to acknowledge that this lockdown is going to hamper trading for the sector. Consumer sentiment is nervous, restrictions imposed make viewings and moves more difficult – and despite the surge we witnessed in Q3 of 2020 – renter confidence is low until more certainty is provided regarding what the future looks like post-February.

Broader economic suffering will also hurt the rental market as the redundancies set in and employer confidence remains low. We expect to see a more protracted softening of prices in the London rental market than previously expected.

The current data still suggests that 2021 is going to be a better year within London’s Co-living market than 2020 – the question is how much does the market recover towards 2019 levels (and potentially beyond), and how quickly does that happen. 

Our data shows that, as was the case with summer 2020, once the government advice returns to ‘go to work’ there is likely to be a significant increase in demand, and therefore a firming up of price. Likewise, our data shows that increased employer confidence positively correlates with young professionals migrating into London. If that advice change happens in April, as is currently being discussed, then we would expect to see the market firming up in spring and into summer, as young professionals re-locate and prepare for a return to a more normal working arrangement.

If there is a more permanent move towards flexible working in the future, once the dust settles, then we could see some more permanent shifts in the co-living market. For example, if more young professionals are required to be in the office 2 or 3 days per week, as opposed to 5, then our data suggests that we might see an increased demand in some of London’s more remote corners. It’s likely that increased internal space (to enable comfortable working from home several days per week), and increased outdoor space, may start to take precedent over centrality at a given price point.

Advice/takeaways for landlords and investors

As the market comes back, while buyers still have more choice than previously, quality is key. The race back to full occupancy will be won by those with high quality, desirable spaces. The typical London co-living occupant is already a discerning customer, and the events of this year will only serve to increase that.

Amount of space and adaptability of space is going to be even more of a focus for customers in the future. Post Covid co-living renters are inevitably going to be sizing up whether the space they’re renting doubles up as a good home-working space – and triples up as an effective home gym! Usability and intelligent layout is more important than ever.

Factoring in outside space, it remains to be seen whether this effect remains permanent but our data shows us that, since the market re-opened in May, outside space has certainly been a much more important factor for co-living renters than in previous years.