COMMENT The global pandemic has brought about a number of tectonic shifts that could change the way we live forever. The demise of high street retail is particularly stark and it is hardly surprising that investors and landlords are looking at the sums and seeing co-living as the potential goose that lays the golden egg. Large, empty, centrally located units look like prime locations for young professionals who want, and can afford, central living with all mod cons but don’t necessarily have anyone to live with.
Putting the community back into cities is not usually about altruism or social business though – it has to make commercial sense for owners/landlords.
This is not a new concept. Co-living developments are already widespread in northern Europe. They have provided a solution to affordable housing in the overcrowded, overpriced Asian megacities such as Hong Kong and Singapore, where bullish co-living operators have seen them proliferate.
Complex model
In London, there are a number of routes in for operators. The planning and tax treatment contingent on this choice can have a major impact and operators should look at all the options, taking into account the impact of legal, planning and tax rules.
Co-living is a complex model involving numerous potential use classes and tax classifications. Existing co-living providers have navigated the planning process by relying variously upon office-to-residential conversions under permitted development rights, sui generis use and hotel use. Each route will have different implications in terms of CIL contributions and affordable housing contributions, not to mention variations in the local plans adopted by different planning authorities.
A landlord in a co-living scheme is looking for maximum flexibility. In the age of AirBnB there is a market for shorter tenancies, but the traditional assured shorthold tenancy vehicle is becoming increasingly cumbersome and may not be fit for purpose, depending on the landlord’s target market. Licenses and special permits or even looking at a hotel booking system may be more attractive to maintain the desired level of flexibility.
Whichever option is selected, landlords will need to be mindful of their statutory obligations. This is particularly relevant in the case of assured shorthold tenancies, where Right to Rent checks as well as the provision of information under the Deregulation Act 2015 are mandatory. Landlords would also be well advised to remember that the government has recently committed to the abolition of no-fault evictions in respect of assured shorthold tenancies.
Paying for convenience
While the complexities of working out the model and the route to market should not be underestimated, there are clear advantages for landlords. Admittedly initial outlay will be high, but investment in a high-spec property with plenty of added value has the potential to attract a high rental. Flexibility with much shorter terms than the norm allows for higher rates. Co-living spaces are about convenience and cash-rich young professionals, or indeed the well-off Saga singles, are willing to pay for this. Focusing on a specific demographic or particular exclusivity should attract a premium. Many such developments house cafes and restaurants as well as fully serviced living, all of which attracts high margins for the savvy operator.
The recent high-profile high street retail insolvencies will leave large empty units in town centres across the country and certainly across greater London. Their scale and central location in the midst of retail and entertainment opportunities and near transport hubs makes them ideally positioned for this kind of development.
Co-living is certainly an option for the repurposing and regeneration of the high street and an answer to the growing need for community – even if that is a manufactured community bringing likeminded individuals together. It is anticipated that the more narrow the definition of that community, the higher the returns. It could well prove to be an interesting experiment in social engineering – for those who can afford to buy into the lifestyle.
Pieter Boodt is senior associate at Russell-Cooke
