Co-living arrangements have been sweeping through Europe’s capital cities, as the younger generations look beyond traditional residencies. Berlin-based Quarters recently announced a $1 billion expansion plan and startups like the Collective have made inroads throughout major European cities.
“The co-living market is evolving quickly, having emerged from nowhere over the last two or three years,” says James Kingdom, Head of Alternatives Research at JLL, told The Investor. “There is significant growth potential in cities where there is pressure on urban land use and the affordability of housing.”
So what’s next? Co-living platforms are beginning to look at Europe’s secondary cities for growth.
The Collective, for instance, has received $800 million to fund growth across the UK, US and Europe and now has 8,000 units operating or under development, with plans to expand to seven German cities. Quarters has announced branches in Krakow and The Hague. Property investment company Oppidan recently opened a co-living unit in Manchester, and they currently plan to do the same in Leeds.
“We’re seeing new and overseas entrants as well as established developers, many with student housing portfolios, looking to Europe’s secondary cities where there is plenty of growth potential,” Kingdom said.
Europe’s secondary cities have become attractive for two significant reasons. They often have less competition for sites than capital cities, which makes planning developments an easier task. Thanks to this lessening competition, regional cities offer the opportunity for larger developments at a much lower cost.
Europe has been clamping down on Airbnb and related services, however, offering up all manner of regulations, which could get in the way of these co-living companies obtaining planning permission.
“Co-living is an ambiguous use class which matters, especially in European markets, as you have various legal obstacles around minimum size, rents and lease lengths in the rental sector,” Kingdom said.
Despite regulation risks, co-living arrangements have become extremely popular with investors. Since 2015, investors have poured more than $3.2 billion into co-living projects, and all signs point to this figure increasing in the coming years.
“Co-living allows investors to diversify their portfolio, and enhance opportunities and pricing,” Kingdom said. “The range of potential customers increases compared to focusing on one particular sector.”
At present, the UK, Netherlands and France are Europe’s largest co-living markets, but Germany is catching up, according to JLL research.
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