Co-living emerging in Sydney as new sector in BTR market

The $15.5 million sale of an established Co-living development in Sydney’s Surry Hills is the latest example of private investor interest in Sydney’s emerging BTR sub-market and the rapid maturing of the emerging sector.

The UDIA award-winning, freehold development at 46 Foveaux Street comprising 32 self-contained studio apartments and ground-floor retail, was sold by JLL at a yield of ~5%.

JLL Joint Head of Metropolitan Sales & Investments NSW Gordon McFadyen said the hotly contested sale was the latest deal of more than $200 million he had transacted in the sector in the past two years.

A JLL Living Sector Classification defined Co-living as offering units typically around 17-30 sqm where the rental covers utility and internet costs, shared facilities and communal living areas.

McFadyen said Co-living attracts a diverse range of clientele from students, professionals and local and international migrants looking for more convenient, accessible residential living options than the traditional long-term rental market that requires long leases, rental bonds and the establishment of utility services and furnishings.

Predominantly located in Sydney’s inner and middle suburbs, he said the markets were 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.

“At the same time, in the metropolitan areas of Sydney, Build To Sell (BTS) apartments development sites are affected by high land prices, long planning approval processes/costs and rising construction costs that have made it unfeasible to bring these projects to life,” McFadyen said.

He said Co-living is now a focus for sites that would have previously been marketed for BTS projects.

“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,” McFadyen said.

JLL Joint Head of Metropolitan Sales & Investments NSW Dylan McEvoy said Co-living appealed to investors as it is 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.

McEvoy said the Co-living market had matured recently with a series of significant projects announced including:

• In January Sydney developer Freecity is planning a $200 million 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 2024, Pro-Invest unveiled plans to develop a 2000-apartment co-living portfolio, acquiring and repositioning ten hotel and office buildings.
   

• Last year, PGIM Real Estate announced it was ramping up its co-living portfolio in Australia to create a $750-million collection of properties, boosting its flexible living model to 6000 apartments.

JLL Head of Living Jack Bergin said demand for Co-living was driven by the lack of opportunities for major BTR developments in Sydney and planning red tape.

He said planning for a major BTR project took up to five years, placing enormous strains on feasibilities compounded by high land values, rising construction costs and high interest rates.