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Co-living boosted by urban nomads’ need for flexibility

More institutional investors are attracted to the PBSA and co-living sector because it has shown to be defensive and resilient as well as professionally managed, experts agreed at Real Asset Media’s recent Student Housing, Micro and Co-Living briefing.

“The development side historically has been dominated by Anglo-Saxon capital, which is the logical consequence of student housing being a long-standing asset class in the US and then in the UK,” said Rainer Nonnengässer, executive chairman, International Campus. “But now, slowly but surely, it has become a sought-after product in Europe, even by conservative investors.”

Edvard van Luijn.

As the pandemic has reduced the attractiveness of other asset classes like office, retail and hotels, international investors’ interest in student housing has grown even more.

“It has become obvious that young people want to leave home and study in person, so places are fully booked,” said Nonnengässer.

“In the European market we see a lot of student accommodation providers not only catering for students but also for young professionals,” said Frank Uffen, co-founder, The Class Foundation.

Experts agreed that the co-living sector targeted at young professionals is growing fast and has huge potential, but they differed on how to best cater for this demand.

International Campus has just launched a new brand focused on micro-living.  “When students finish university and start working they want a similar type of accommodation,” said Nonnengässer . “But we wanted to create and market a separate product because we believe that sooner or later young professionals have different requirements from students.”

Hybrid student/microliving accommodation has ‘community feel’

Rockfield Real Estate has a different strategy and it prefers to keep both under the same roof. “We keep students and young professionals together because we like the mix and the nice community feel,” said Edvard van Luijn, director acquisitions, Rockfield Real Estate. “They have their own bedroom and bathroom but they share a kitchen and it’s a popular concept because it’s so affordable.”

Young Europeans are “urban nomads” who are increasingly mobile and flexible and unwilling to settle down and take on a mortgage too early, so the potential for this asset class is huge.

But there are issues that investors and operators have to take into consideration. “Co-living is less efficient to run from an operational point of view,” said Samuel Vetrak, CEO, Bonard. “It is a younger, less established asset class and the assets tend to be smaller so opex is a bigger proportion of your revenue.”

Another factor is that students are a captive audience, as they are tied to the academic year in one place, while young professionals are less predictable as they have more freedom of choice and more options as a tenant.

“The exposure to occupancy risk and opex risk is greater in co-living schemes, so they need to be very well-run,” said Vetrak. “For these reasons, hybrid schemes maybe work better than stand alone co-living.”