UK co-living sector sees rapid growth as investor interest surges

Knight Frank's report highlights a surge in both delivery and investor interest in co-living, pointing to significant growth potential for the sector.

Woodside co-living scheme, Wimbledon - Built Asset Management | BTR News
Woodside co-living scheme, Wimbledon. Image credit: Built Asset Management.

Global property consultancy Knight Frank has released its Co-Living Report 2024 that reveals significant growth and investment in the UK’s co-living sector.

The sector has seen explosive growth in recent years, with a 65% increase in new beds delivered in 2023 compared to the previous year, the report found. This brings the total number of operational co-living homes in the UK to 7,540, representing a fivefold increase since 2019. Yet, despite this rapid expansion, current delivery accounts for just 0.4% of the potential target market, highlighting the enormous scale of opportunity for developers, investors and lenders in the sector.

Investor appetite for co-living has been robust, with nearly £1bn spent on acquiring or funding developments since 2020. This trend is set to continue, according to Knight Frank’s latest UK Living Sectors Survey, which captured the views of leading institutional investors who currently own over £75bn in living sectors assets across the UK; 45% plan to have invested in co-living by 2028, up from 32% of respondents who had already invested.

“The potential market for co-living comprises 1.7 million individuals currently renting in shared accommodation in urban centres across the UK. The co-living sector’s growth trajectory is impressive, with a fivefold increase in complete homes since 2019.

“This rapid expansion in supply reflects the sector’s growing maturity and its ability to meet evolving housing needs. As larger schemes come to market and institutional investment increases, co-living is cementing its place as a key component of the UK’s wider rental landscape. The macro drivers for the sector are well-documented and have underpinned sector growth in recent years.

“They include a clear and deepening supply/demand imbalance in towns and cities across the country, increasing population, urbanisation, decreasing household sizes, and shifting consumer attitudes. Affordability constraints for potential first-time buyers have also increased the demand for good quality rental housing and supported rental growth.”

Oliver Knight, Head of Residential Development Research, Knight Frank

The report reveals that the sector has a diverse demographic, with 72% of current residents aged between 26 and 40, demonstrating that young professionals are renting within the sector – not just students or recent graduates. The largest proportion of residents (35%) falls within the 31-35 age bracket, further emphasising the sector’s diversity.

Looking ahead, Knight Frank expects co-living supply to nearly treble to over 20,000 beds within the next three years, based on the current pipeline of developments. The report highlights key trends shaping the co-living sector.

“The surge in institutional interest in co-living is a clear indicator of the sector’s potential. As more investors recognise the value proposition of co-living, we expect to see continued growth and innovation in this space, particularly in urban centres where housing demand remains high.”

Oliver Heywood, Partner in the Residential Investments team, Knight Frank

While London dominates with 74% of complete co-living development, the pipeline is expanding to other markets. Manchester, Liverpool, Sheffield and Birmingham are leading the way in regional cities, thanks to their large and growing populations of young professionals, strong graduate retention rates, and expanding employment markets.

It has also been found that the sector offers a more affordable option for private renters. In London, co-living rents are targeted at a 7% discount versus all-in costs of living in other private rented sector accommodation, and a 14% discount relative to multifamily homes.

“From a valuation perspective, we’re seeing increasing confidence in the co-living sector among lenders. This is underpinned by robust fundamentals such as strong occupancy rates, premium rental yields compared to traditional residential assets, and the sector’s resilience during economic fluctuations.

“The rapid lease-up periods we’ve observed, often averaging four beds per day in some developments, coupled with high tenant satisfaction rates, are providing lenders with the assurance they need to back these projects.”

Ewa Scott, Associate in the Residential Investments team, Knight Frank