Planets Align for Co-Living as Sector Fires Up in Sydney

Co-living is hot right now. In fact, it’s become such an attractive asset that developers are even looking to amend approved projects to incorporate it. Mirvac and John Holland replaced a conventional apartment tower with 520 co-living rooms at its $900-million Waterloo Metro Project this month, while Urban Property Group added 83 co-living units across five new storeys to its approved $55-million 42 East Street project in Granville ( pictured top ). But it’s not just developers seeing the appeal of lower construction costs per unit and strong rental yields. Demand and supply Recent investment plays have highlighted the growing interest in co-living, including VentureCrowd’s fundraising for a Morningside co-living project, but it’s in Sydney that interest has truly been piqued. Knight Frank sold two co-living sites in the NSW capital recently, taking the total of developments in that category sold to $50 million for 2024. A 480sq m, 25-room DA-approved site at 52 Blaxland Road in Ryde was sold for $2.8 million to a local developer, representing a rate of $112,400 per key, with the estimated income upon completion being more than $845,000 gross. In Marrickville, 94-98 Addison Road, approved for a co-living development of 35 apartments, was sold for $4.8 million to Property Enterprises (NSW) Pty Ltd. ▲ A render of the co-living project planned for 94-98 Addison Road, Marrickville. Knight Frank senior sales executive Adam Droubi says that from an investor standpoint, the yield of a 30 or 50 room co-living asset is more attractive that apartments. “Investors are interested because once you take into consideration land and construction cost, they’re basically buying them under replacement value,” he says. And in a market where construction costs are forcing developers to walk a feasibility tightrope, financials need to be robust. “Co-living room sizes are often 20 to 21sq m studios as opposed to a two-bed apartment that might cost double to build but attain only 20 per cent more rent,” Droubi says. Real estate asset manager Pro-invest made its co-living debut last year, prompted by the immediate need for housing supply, according to co-founder and managing partner Sabine Schaffer. ▲ Pro-invest co-founder and managing partner Sabine Schaffer. “[The rise of co-living] is part of a broader trend towards alternative real estate classes as investors increasingly look to diversify their investment portfolios for higher returns,” Schaffer says. The appeal of co-living assets to investors is in the higher yield per square metre compared to hotels and apartments, and their appeal to a much wider audience. “You can also adjust rates more quickly as market conditions change, rather than in longer-lease models and the use of communal spaces and bundled services gives more opportunities to make additional income,” Schaffer says. Schaffer expects for investors getting their hands on co-living assets will be a challenge given how tightly held they are, says Droubi. &ldquo;Ninety-five per cent of co-living developers are actually asset holders and they&rsquo;re not looking at selling, we had five assets sold [last year], so by the amount of co-living products being sold you can see how tightly held it is.&rdquo; --> Tenant and suburb profiles While co-living projects and boarding houses in days gone by may not have been an attractive option, councils are becoming amenable to more diverse housing options. “Four or five years ago they didn’t want overcrowding or suburbs being infiltrated by towers. Now they have shifted their attitude and are looking at co-living assets as part of potential to combat the housing crisis,” Droubi says. ▲ A render of the co-living proposed for 52 Blaxland Road at Ryde. “Even community housing providers are delivering and building their own co-living assets.” Chronic undersupply and diverse demographics are why Sydney is proving to be such a hotspot for co-living. “With co-living, you have overseas students, young white and blue collar or FIFO workers, people starting university who are working at the same time. “It’s a profile of renters who can’t spend $800 or $900 a week individually or if they rent a two-bed in, say, Glebe, they might pay around $1100 and instead of paying $550 each, they can have their own space with amenities and common rooms.” Thanks in part to its major universities and hospitals, Sydney attracts lower-price bracket renters as much as high-end, and there’s a balance to be made between affordability and typology. ▲ Knight Frank senior sales executive Adam Droubi. “The appeal of co-living assets to investors is that they typically provide higher yield per square metre compared to traditional hotels or apartments, and they appeal to a much wider demographic, especially millennials and Gen Z who make up a significant and growing part of the population,” Schaffer says. Co-living and flexi-living, which according to Pro-invest sits between a traditional hotel and the co-living model, are particularly attractive to Sydneysiders, she says. “Sydney is not only the most expensive city in Australia, but one of the most expensive globally when it comes to rent and mortgages, which puts it beyond many people to live, especially in urban areas. “At the same time, we can see an increase in loneliness and people seeking connection and a sense of community.” The evolution of co-living Whether it’s a sense of community, a need for flexibility or a focus on sustainability, co-living is ticking boxes. But it’s not a static concept, developers are mix-and-matching standard residential with co-living. “These hybrid models appeal to a wider range of residents and help to diversify risk for developers, while maximising occupancy and revenue,” Schaffer says. That’s not to say it’s a straightforward play. “There could be higher complexities in terms of zoning and legal issues, especially as many governments have not yet fully recognised the importance of co-living and flex-living projects in terms of providing for evolving lifestyle demands,” she says. “At the same time, managing a building with both co-living and traditional apartment residents could be more complex.” ▲ Urban Property Group’s Granville project proposes five storeys of co-living. As the darling of the residential development sector, build-to-rent units total 15,089 in New South Wales with 3584 completed or under construction and 11,505 in the pipeline, so there is still a need for diversity and volume in the housing pipeline. Co-living projects inevitably do well near transport hubs as well as hospitals, but in terms of scale we might see more larger-scale plans, such as EG Funds’ Redfern project of 120 rooms , approved in October of last year. “We will see higher-scale projects, more 100 to 130 rooms, and also developments shifting out to Western Sydney,” Droubi says. “That’s because the opportunity for that scale in the Inner West and city fringe is minimal, and will cost more, so there ’ s no doubt it will start moving. “But at the minute, it just makes sense to develop co-living.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

Planets Align for Co-Living as Sector Fires Up in Sydney

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