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Co-living and the graduation of student housing

James Kingdom, Head of Alternatives Research at JLL discusses the benefits of purpose-built shared living spaces

Posted by Charley Rogers | April 13, 2018 | Sustainability

How we live and use real estate is changing. Population growth, increased longevity and business innovation are all combining to put pressure on urban land use.

Demand for student housing continues to grow through a combination of higher participation levels, population growth and increasing global student mobility. Even in markets that have seen high levels of student housing development in recent years, local authorities are still reluctant to lose more open market housing to houses in multiple occupation (HMO). Co-living is a natural evolution for student housing and provides a purpose built student housing type product that is available to the wider residential market.

Previous governments’ fixation with home ownership has now given way to the recognition that there is need for a broader mix of tenure types to meet housing need, and within that different types of housing to suit modern lifestyle demands. With annual housing delivery targets at over 220,000 units per annum regularly being missed, high density, purpose-built living space, whether solely for students or the private rental market, can help achieve those targets and take pressure off existing housing.

From a planning policy perspective, the proposed 2018 London Plan identifies large-scale purpose-built shared living space (PBSL), otherwise known as co-living, as the definition for any student housing development where there is no agreement in place with a university. PBSL is defined as shared living developments that comprise of at least 50 units and that the units “should be appropriately sized to be comfortable and functional to a tenant’s needs.” Ultimately, this type of accommodation is a short-term solution, but importantly, is available to people within the private rental market, as well as students.

By 2025, there will be 4.4 million more people living in UK cities. Universities play a key role attracting talent, jobs and innovation to these cities.

Direct let beds with no university agreement in place account for 70% of the 49,000 extra student housing beds in London over the last decade, amounting to over 3,000 units per annum. The new annual target for purpose built student accommodation (PBSA) in the capital is 3,500 beds, but since 2007, around 1,100 PBSA beds with a university agreement in place have been built each year.

In recent years, student housing has been the focal point for commercial property investors looking to capitalise on structural and demographic changes, with over £20 billion of investment since 2011. While the private rented sector (PRS) is considerably less mature and smaller in scale, the JLL Alternatives Investor Survey 2018 shows it is the sector where investors are keenest to invest. There were £2.2 billion of PRS deals in 2017, half that of the PBSA market. However, with the comparable multi-family market in the US accounting for over 25% of all commercial property transactions, the scale and potential for the PRS market in the UK is considerable.

This is where student housing and co-living have a significant role to play. Apart from sourcing operational stock, the biggest challenge for investors is finding an appropriate operating partner with the necessary management expertise. Compared to the PRS sector, student housing has a number of operators with up to a decade of experience in managing properties with a large number of tenants with frequent turnover rates. These skills can readily be applied to co-living in locations where students and young professionals already co-exist.

By 2025, there will be 4.4 million more people living in UK cities. Universities play a key role attracting talent, jobs and innovation to these cities. With the development of co-living, student housing has the potential to evolve into an asset that can play a key role in providing flexible, serviced living space to help satisfy that demand.  

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