Co-living vision takes off as investors embrace rising sector
MELBOURNE: Rising Asian investor interest is bolstering the multigenerational co-living sector in the Western world.
Chinese-backed developer Vision Land has snapped up a site in Sydney’s Surry Hills for $15.5m and will undertake a co-living development in a sign the sector is taking off.
The group, which is separately undertaking a residential development project at nearby Glebe, will forge into the hot area at a time when larger build-to-rent developers are struggling to get projects to stack up.
It has picked up the property at 46 Foveaux St, which comprises 32 self-contained studio apartments and ground-floor retail, on a yield of about 5 per cent.
Selling agent, JLL’s Gordon McFadyen, said it was the latest deal of more than $200m he had transacted in the sector in the past two years. Co-living complexes have units of about 17-30sq m where the rental covers utility and internet costs, shared facilities and communal living areas.
Mr McFadyen said co-living attracted students, professionals and local and international migrants looking for convenient living in the tight rental market. Many projects are in Sydney’s inner and middle suburbs, and are becoming more popular with developers and investors.
“Co-living developments offer a greater density on-site, present some construction efficiencies as they do not necessarily require extensive underground parking, and provide a developer with diversified cash flow,” he said.
“At the same time, in the metropolitan areas of Sydney, build-to-sell apartments development sites are affected by high land prices, long planning approval processes/costs and rising construction costs that have made it infeasible to bring these projects to life,” Mr McFadyen said.
He said co-living was a focus for sites that would have previously been marketed for traditional apartments.
“It is a sector attracting strong interest and investment from developers, private investors and funds seeking to capitalise on rising rentals as the demand for medium-term accommodation snowballs in an under-supplied market,” Mr McFadyen said.
JLL agent Dylan McEvoy said co-living appealed to investors as it was cheaper to operate than serviced apartments, and you can tailor your service offering based on your operating model. It does not require services such as linen, cafes, and room service while offering a premium rental for short-term stays.
In January, developer Freecity unveiled a $200m co-living project with a proposal for 505 apartments at Macquarie Park and had secured a development site in Rockdale for a co-living concept for students.
In February, Pro-Invest said it would develop a 2000-apartment co-living portfolio, acquiring and repositioning 10 hotel and office buildings. Last year, PGIM Real Estate also said it wanted to create a $750m collection of properties, taking its flexible living model to 6000 apartments.
JLL head of living, Jack Bergin said investors were increasingly considering co-living as part of a broader living investment strategy.
“The lack of clarity from government surrounding changes to MIT taxation for BTR has slowed investor appetite within this market. Until a clear path forward is defined ahead of the 1 July, 2024, taxation change date, some investors looking to alternative routes to invest into living sectors and the co-living sector have been a beneficiary of that,” he said.
“Given the underlying supply demand imbalance within capital cities, investor appetite will continue to remain high for completed projects which address housing needs.”
