Co-living: the newest asset class comes to Manchester

Stuart Rogers
The first purpose-built UK co-living scheme outside of London has arrived in Manchester. The model brings new homes for young professionals, an emerging asset class for investors—and a challenge for developers.

Manchester is already well known for its music, football, restaurants, bars, galleries, shopping, access to countryside and overall quality of life. Its rapidly expanding city centre population soared from 14,300 in 2002 to 35,600 in 2015, while jobs in the area jumped 84 per cent between 1998 and 2015, according to Centre for Cities.

Manchester’s residential sector has been under-supplied for some time but is now becoming much more active, at least in the private sector. With inward investment from corporate relocations (and a city council eager to encourage more of these) and plenty of new development in the strong commercial office market, together with a graduate retention rate of 51 per cent, the demand for city centre living is set to continue.

The call for good quality rental accommodation has been further fuelled by the decline in homeownership rates, particularly among young people: in 2017/18 just 37.6 per cent of those aged 25-34 were homeowners, compared with 58.6 per cent in 2004/05.

From BTR to co-living

The situation is mirrored by many of our cities and has led to the emergence of the build-to-rent (BTR) segment, with a growing focus on the co-living model. Originally targeting young urban professionals, as an extension of the private student accommodation model, we’re also seeing stirrings of interest in senior living provision.

The driving force behind the rising popularity of co-living spaces are young renters moving to new cities for job prospects, looking for safe and secure accommodation that offers proximity to work, leisure and social infrastructure.

There’s now a move to a more mid-market approach, even in London where developers originally focused on the luxury market. But as BTR moves into regional cities like Manchester, there’s an increasing acceptance that mid-market co-living products can work in areas where rents are lower.

What is co-living?

The idea of co-living is to create a community-centred environment that not only provides privacy in living arrangements but also promotes social contact through shared amenity spaces and community events. The occupant rents a small private space—a studio or a bedroom in a shared apartment—and benefits from those shared facilities.

As an asset class, co-living seeks to build a community centred around ‘real socialising’ in a world where social media platforms are the virtual alternatives for socialising for millennials. The model addresses the need to meet and connect with other people, for a generation that reports more loneliness than their elders: 27 per cent of millennials in London say they would be embarrassed to admit to feeling lonely, compared to 12 per cent of over 55s. Sixty-eight per cent of millennials in the capital report that they often feel isolated, versus 49 per cent of over 55s[1].

We can expect the model to gain traction, although the UK is somewhat behind the curve: key operators began in the US and China in 2012, swiftly followed by mainland Europe, whereas London waited until 2016 until The Collective, which operates schemes at Canary Wharf and Old Oak, entered the market[2].

Expectations of today’s renters

There’s nothing new about communal living—putting up with irritating flatmates is something that most of us have done in our 20s—and there have been a few notable instances of housing built around exemplary communal facilities. The Barbican Estate in London, for example, opened in 1969 and allows some of its facilities to be accessed by the public as well as residents.

Co-living is marketed as a different concept, however, with its emphasis on privacy amid communality, together with an affordable price point. It aims to offer a higher standard of living than a private landlord house share or studio let, harnessing high-spec design and technology and better space utilisation.

In line with millennial expectations, there are more flexible leases, high operational standards facilitated by responsive management companies (often including on-site concierges) and billing, repairs and optional services like cleaning handled via an app.

The shared amenity spaces are an important differentiator and are typically marketed as an all-inclusive experience, with facilities ranging from workspaces, lounges and libraries, to cinema rooms, gyms and outdoor/roof terrace space.

The main compromise is the small-scale private space, the idea being that occupants spend little time in their studio or individual bedroom, and more time in the communal areas when not out at work or leisure.

The developer perspective

Schemes currently undergoing development are mainly being brought forward by developer/operators, so mainstream developers are not yet accessing this segment of the market. To become an accepted mainstream concept, co-living needs to be categorised as an institutionally-recognised asset class. At the moment, planning departments are still reviewing applications in the absence of any defined category or standards, so every project is appraised on a case by case basis. This is both a national and local planning policy issue.  

Interestingly, mortgage lenders are actively exploring the extent to which co-living could provide a viable route towards home ownership, and the potential demand for a ‘to buy’ co-living product. For this to happen, Barclays suggests that policy interventions (including planning reforms around minimum space requirements) may be needed, as well as innovative thinking from property developers[3].  

There are perhaps more questions than answers at the moment, but if these schemes have viable occupancy rates and are shown to be a robust long-term asset, planning resolutions will have to emerge, and the concept will doubtless thrive. Its adaptability for the affordable housing and home ownership markets will also be an area to watch.

Echo Street, Manchester

iQ Student Accommodation, owned by Goldman Sachs and The Wellcome Trust, is bringing co-living to Manchester, providing 621 bedrooms  at Echo Street, alongside a neighbouring 242-bed  student accommodation block. There’s a mix of standard and premium units, with various configurations of studios, twodios, and two-, three- and four-bed shared apartments.

On-site amenities include lounges, gym, library, co-working space, cinema room, games zone, coffee shop, bookable private dining rooms/kitchens and private roof terraces. The accommodation will be operated and managed by iQ and leased on a flexible basis. Faithful+Gould is appointed as Project Manager, Employer’s Agent, Quantity Surveyor and Principal Designer.

It’s a transformative time for this part of Manchester, which is on the edge of the North Campus Strategic Regeneration Framework area, and adjacent to the proposed HS2 station and emerging Mayfield development, which Faithful+Gould is also supporting. It’s also an exciting time to be part of the development of this new asset class as it prepares to play its part in assisting with the current housing shortage.

 


[1] 2017, Ipsos MORI SRI, Social isolation in London

[2] 2018, Knight Frank (India), Co-living: Rent a lifestyle

[3] 2019, Social Market Foundation/Barclays, Co-Living: A Solution to the Housing Crisis?

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