"Shared living was once seen mainly as an affordable option for students and young people until they could move on. HMOs serve this need well, but they don’t cater to those wanting sociability combined with high-spec homes that fit their lifestyle and ambition"
- Robert Sadler - Excellion Capital
New analysis from boutique debt advisory and investment firm Excellion Capital has revealed rapid growth in the UK’s co-living sector. The report suggests property investors should consider acting now to seize the opportunities this expanding market offers.
While both HMOs and co-living involve shared living arrangements, with individuals having their own bedrooms and shared communal spaces, important differences set co-living apart as a unique investment prospect.
The primary difference lies in the property type. HMOs are often converted from existing homes like terraced houses, whereas co-living units tend to be purpose-built, similar to build-to-rent developments.
Another distinction is the target market. HMOs generally serve students and lower-income workers sharing out of necessity, while co-living appeals to well-off young professionals and digital nomads seeking a lifestyle choice.
The UK’s co-living market has accelerated notably in recent years. Industry data shows a 48.6% rise in co-living completions last year, reaching a record 3,267 units.
This surge was mainly driven by regional growth outside London, where completions jumped by 1,508.2% to 2,155 units in 2024. London itself recorded 1,112 completions but experienced a 46.2% decline, reflecting its already mature co-living market.
Confidence in co-living remains strong, with 8,541 planning permission applications submitted in 2024 and 6,239 granted, indicating further growth ahead.
Why co-living appeals to investors
Co-living properties typically feature a higher quality finish than standard HMOs, allowing landlords to command premium rents.
Although initial investment costs are higher, tenant satisfaction tends to be stronger, resulting in better retention. Investors can also increase rental income by offering amenities such as gyms or co-working spaces.
Another advantage is the potential to build a strong brand around co-living schemes, which can be replicated in other locations if successful. Unlike HMOs, co-living does not face the same negative perceptions from the public or planning authorities.
Lenders’ perspective on co-living
Lenders generally view co-living investments positively due to several strong demand drivers:
Urbanisation is drawing more young professionals to cities, many priced out of one-bedroom flats. The ongoing loneliness epidemic, partly stemming from the pandemic and digital lifestyles, has increased interest in community living.
Remote work and digital nomadism continue to rise, with co-living offering flexible, high-quality housing options. Co-living’s high-quality finishes, strong community focus, and flexible leases also contribute to lower tenant turnover compared to HMOs or traditional rentals.
Investors can add value through additional services, including professional cleaning, concierge services, cinema rooms, gyms, and swimming pools. Partnerships with local businesses to offer tenant discounts can further boost rental premiums.
Co-living developments make efficient use of space, maximising rentable areas and improving returns. Schemes vary in size, from small, easily scalable projects to large developments that attract institutional capital.
The prime tenant demographic is young professionals aged 25-35 who are tech-savvy, well-employed, and willing to pay a premium for quality, flexibility, and amenities.
“Co-living demand existed long before the concept was fully realised," comments vice president of real estate at Excellion Capital Robert Sadler. "Shared living was once seen mainly as an affordable option for students and young people until they could move on. HMOs serve this need well, but they don’t cater to those wanting sociability combined with high-spec homes that fit their lifestyle and ambition,"
He added, "We’re now seeing many investors shift towards co-living assets instead of HMOs. This strategy helps build and diversify portfolios. Even smaller investors can hold local co-living units for strong yields, potentially expanding their brand into new cities. For investors, co-living also offers an appealing exit strategy since portfolios can be sold to institutional buyers.”
