Property consultancy JLL has found that a critical housing shortage combined with a favourable planning landscape has been driving investment into co-living.
This makes it one of the few real estate sectors with any active development, according to JLL. Sydney is also garnering recognition as one of the sector’s fastest maturing markets.
Strong population growth and investors’ propensity towards income-producing real estate as a defensive strategy are also part of the appeal. Therefore, Sydney has been the focus of over 90% of total co-living activity in Australia.
JLL has found that the sector is established in the northern hemisphere, and along with Build to Rent accommodation, has been the most actively traded asset class globally since 2021.
In markets with under-developed student housing, investors are viewing co-living as an option to fill the gap for students.
Global investment manager PGIM Real Estate is among some of the large operators entering the sector in Australia. The company is currently building out a A$750m portfolio across Sydney and Brisbane in a joint venture with Tribe – a modular hotel chain owned by Accor Group.
Meanwhile, hospitality investor and asset manager Pro-Invest announced a A$500m equity raise in February 2024 to convert older hotels and office buildings into co-living apartments and key worker housing.
“It is a sector that is 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 undersupplied market.”
Gordon McFadyen, Joint Head of Metropolitan Sales and Investments, NSW, JLL
While Australia usually leads the Asia Pacific region in the development of new or niche property classes, that hasn’t been the case with co-living, largely due to tax implications, according to JLL research.
While these are being addressed, Australia is ‘playing catch up’, and as such, its co-living sector is still largely in a ‘price discovery stage’. Deal transparency remains a barrier to growth and accurate pricing.
Because of this, institutional investors are focused on the annual rate of return on the equity portion of their investments, rather than yields and cap rates – that is, the rate of return on a purchase price and property value respectively.
According to JLL, the introduction of planning guidelines for co-living by the NSW Government in 2021 – and amended in 2023 – has provided the impetus for development in Sydney.
Further clarity over migration and population growth over the past two years has helped accelerate construction.
