Kathryn House
Hello and welcome to Talking Property with CBRE. I'm your podcast host Kathryn House and in this latest episode we'll be delving into Australia's evolving co-living sector to discover what co-living is and why it's attracting such strong and growing interest.
Rhys Williams
Co-living, it really is where people purpose-built student housing was maybe 10 years ago. It needed pioneers to come in and bring that asset class to life.
Kathryn House
That's Rhys Williams, the co-owner of Australia's biggest co-living operator, UKO.
Andrew Purdon
To attach specific typologies of housing which enables key workers to live close to where they work, I think is a huge part of the evolution of the city.
Kathryn House
And that's Andrew Purdon, the regional director of CBRE's Pacific Living Sectors - Capital Markets business. So, let's open the door to find out more about co-living. I hope you enjoy the conversation.
Rhys, welcome to Talking Property and thanks for taking the time out.
Rhys Williams
Thank you for having me.
Kathryn House
And Andrew, you're a Talking Property regular. It's great to have you back on the show.
Andrew Purdon
Hi Kathryn, great to talk to you as always.
Kathryn House
So, Rhys, as a scene setter, can you tell our listeners what co-living is? I've seen UKO describe it as a new way of living that's lighter on stuff and richer in meaning. Rhys, give us the lowdown.
Rhys Williams
Look, there's a short answer and there's probably a longer answer. The short answer, which I give often to not confuse people about the word co-living is just to say they're furnished studios with utilities included and amenity areas in a building so you can meet people. The longer answer to that, it's a change in the way in which people are living. There's an on-site community manager who looks after their needs as well. And then there are amenity areas which are designed to enhance the experience of someone's stay beyond just their studio apartment. And the studios I should point out, are typically 25 to 28 square metres, which is a big enough space to have a couch, coffee table, desk, lounge, bed, fully fitted out kitchen, bathroom and often a balcony as well. So people can meet all of their functional needs in a co-living studio without having excess space that they're paying rent for. But then they have access to amenity areas within the building. And those amenity areas would often be things like a co-working space, a resident lounge, a communal kitchen, an outdoor area and private dining and sometimes gyms as well.
Kathryn House
Thanks. And Andrew, give us your take on co-living.
Andrew Purdon
We get asked this quite a lot as well by investors. You know, in its essence it's BTR studios. You know what Rhys does, longer stay. Not necessarily quite as long as BTR, but longer stay residential studio configuration. So, in my opinion it's simple. It’s BTR studios or it's BTR for single people. You know, sometimes gets a bit over complicated, you know, what is this sub asset class? It's pretty straightforward if you ask me. Yeah.
Rhys Williams
And I think it's really important that it's understood, you know, in the way that Andrew's describing, I guess, from an investment and valuation perspective, because as Andrew's sort of articulating, it's fundamentally just a residential asset and therefore in terms of the stability of the occupants and the low risk nature of it being residential really needs to be reflected in the way in which it's viewed by the investment community. We often hear that there's not enough comps in co-living to justify certain valuations. And I sort of think to myself, well, you've only got to look at what a residential block may trade for, or you've only got to look at what a build to rent asset is valued at. And that will give you your answers as to sort of the way in which co-living is perceived.
Andrew Purdon
Yeah, for sure. And when we think about that, Rhys, what we're really focusing on is the cash flow characteristics and the co-live cash flow characteristics in terms of that occupancy level, that rent roll consistency. Very, very similar to multifamily, build to rent. It's just the operating costs might be a bit different.
Rhys Williams
Absolutely.
Kathryn House
So, taking a step back, Rhys, UKO was really the early mover in this sector in Australia. You opened Australia's first co-living space in Sydney’s Stanmore, back in 2019. Give us the backstory about you, how you got into this sector and what does UKO actually stand for?
Rhys Williams
Yeah, well, the answer to the first question is obviously a bit long. I was living in a flat, I guess in the early days with my best mate from school who's now my business partner, Alex, and we busted up with our girlfriends probably simultaneously or they got rid of us. I can't actually remember how we ended.
Kathryn House
How could that have happened.
Rhys Williams
Yeah, yeah, I'm sure we stuffed it up. We just had a spare room to rent in our apartment in Bondi and we thought, well, what are we going to do? There was no internet back then, this is like 2001 or whatever. And so we stuck up an ad on a telegraph pole and it just said furnished room for rent with, you know, two great Aussie blokes, who's in? And to our astonishment, there was, you know, this was done in sort of January or February in Bondi. Then there was a queue of people down the street wanting to move in. And we sort of looked at ourselves and we're like, what's going on here? Like, why do so many people want this? And this is back in 2001, and we'd just actually come back from the UK, sort of doing a gap year. And we knew that over there, there was a lot of furnished accommodation in the market in places like London, other parts of Europe, but there was literally nothing furnished in Australia. And to this day, there's still nowhere near enough furnished accommodation, in our view, in this market. So what we did then is we just started working with small developers and families who had apartments. And what we did was we tried to create a fully furnished product and bring the furnished accommodation typology to the Australian market. And so we did that for 10 years and built that up. That led to us stepping into the serviced apartment hotel market, and beyond that, we could see the headwinds for institutional investors to come into Australia. And we could also see that there was still an extensive housing shortage. And so we found that if we could leverage our experience from what we've done in hotels, where we were running quite a number of hotels, Sydney and Melbourne, under our Veriu brand at the time, we thought, if we can actually create a brand that is an operational brand that can partner with investors and capital to provide this furnished studio product under the banner of co-living and bring it to the Australian market, then we thought it would be a good thing.
Kathryn House
And so, UKO, tell us about the actual name. Where did you come up with that from?
Rhys Williams
Yeah, good question. When we were sort of designing the brand, we were trying to obviously think of something that would catch people's attention and get them even just thinking the exact question, what is it? And it actually, when we did a bit of a dive on the brand and the typology, it was connected to a Japanese word which basically meant to transcend convention. So we thought that was a very nice fit for where we were at that point, which was ultimately transcending sort of the conventional way that housing was working in the Australian market. And then I guess it was a bit of a play on the word co, because, you know, it was going to be called co-living because that word had just sort of emerged in. In sort of 2018 globally. But it was still as you say, a bit misunderstood.
Kathryn House
I love it. And Andrew, I know you've had experience with trying to find furnished accommodation when you first moved to Australia a few years ago.
Andrew Purdon
Exactly. I mean I'm in the sort of recent migrant category. I moved here three years ago and actually I was introduced to Rhys through a mutual contact and he managed to find a vacant studio for me in his Surry Hills, Foveaux Street UKO. So I've actually lived in a UKO building which was pretty fun. I came to Australia six months prior to my family just to get set up. So yeah, the convenience factor for me was huge. Didn't want to have to start buying sofas and beds and you know, the rental market's so tight in Sydney I just needed somewhere convenient to stay and I had a great time living in a UKO building for a period. It was awesome.
Rhys Williams
And he paid his rent on time, which was great, you know.
Kathryn House
So let's take a look at the investment side Andrew. I mean it is still a fledgling sector in Australia, but we've seen a growing number of local and global groups targeting the market. So private equity firm Futuro Capital, they recently announced plans to raise about $100 million of equity to buy more co-living properties. They want to have 3,000 beds across Australia and New Zealand. Investa, they've unveiled plans for a $230 million project which they've dubbed Studio Living. Pro-invest, a $500 million equity raise to transform older hotels and offices into co-living. And CBRE Investment Management. They're investing in co-living around the globe. So, what's the appeal?
Andrew Purdon
The appeal pretty simply is this is responding to a customer's needs. The market is struggling to deliver enough supply of apartments and when we put that in real numbers, the Sydney demand forecast for apartments right now is about 30,000 per annum and the market is delivering this across to rent and for sale less than half the requirement. The market's delivering about 12,000 per annum. So, what's happening out there is that with the net migration numbers still coming through we had an announcement yesterday, Kathryn, I'm sure you saw that 2024 immigration number, 446,000 people into Australia in one year that we just got this very structural undersupply. So, what the investors are saying to themselves is they want to invest behind the tailwind of population growth. Density doesn't just mean height. You look at the transport orientated policies that have been put through in New South Wales and Sydney specifically going very tall around stations, that's part of the answer for delivering supply but actually getting better density out of existing envelopes is something that co-live works beautifully for whether that's building ground up or whether it's repurposing older assets. I'd love to get Rhys feedback on that when he looks at a site. You can take an apartment site that's consented for maybe 50 or 70 apartments and what can you then get out of that? By using the studio configuration, which delivers ultimately more rental homes, more people can live in the same building envelope. It's pretty cool.
Rhys Williams
I think that's, as Andrew's saying, that's why this institutional capital is looking to step in here, because they're addressing the market need and it's got an investment appeal to it as well at the same time. So I guess we see a huge appetite coming in from institutional investors into the space and we can understand exactly why it's there. And then I guess as operators we take the position of building our learnings into these feasibilities and looking obviously to work with them as a third-party operator.
Andrew Purdon
Back to that point of the undersupply. And a lot of people ask, well, why is the supply not being switched on? We've got all this demand, we've got population growth, why is supply not coming through? And it's just the economics at the moment of building new apartments in a lot of locations, you know, the value of the apartment is less than the cost. So what Rhys is describing with that dollars per metre advantage for co-liv, it actually really helps overcome the viability hurdle and you get a viable project for renters and for the investors, of course.
Rhys Williams
Where we're also very interested in that context, Andrew is looking at co-living as a part of mixed-use. So we're having interesting conversations with people from all walks of the development community. We've got co-living uses obviously being looked at as an adjunct to build to rent. We're also looking at co-living alongside hotel use. So, we've actually got, coming up in Adelaide, it'll be Australia's first co-living, hotel, mixed-use project where we've got 240 keys of studios. 120 of those keys will be under a hotel typology, operated as a hotel under our Veriu brand. And the other 120 keys will be operated as UKO studio living assets under the UKO brand. You know, we're also dealing with people with pubs, shopping centre owners, or you've also got developers with a plot of land that they haven't been able to put to use. And then finally and very interestingly, the office conversion space from office into co-living.
Kathryn House
So, is it really blurring the lines between hotels, purpose-built student accommodations, serviced apartments and where are investors getting the best returns?
Andrew Purdon
Well, I'll have a response to that. I mean I think the lines between the sub segments of living are blurring and you know Rhys's business is a great example where within the same operational platform you're running pretty much all forms of rental housing, Rhys, aren't you, from hotel to serviced apartment. You also do multifamily. So, once you've got that spine of infrastructure and expertise you can then play in a slightly different lane and treat with a different customer. So that's pretty clear that's blurring. I think if you look at what's happened in the PBSA market, it's become much more hospitality orientated. This concept of binding people in communities and having shared experiences, it's bringing aspects of hotels into long stay residential in that sector and of course co-living is doing the same thing. So the blurring is definitely happening. It's that hybrid resi hospitality hotel sort of model and people do seek greater levels of service and convenience today than they did 10 years ago. So, the operators are responding to that is pretty clear. The returns question is an interesting one Kathryn. When we think about returns it's partly around what the cap rate assessment is on the cash flow. The cap rate for a co-live asset is, is a bit wider than multifamily. So, in Sydney you could say that consistently a multifamily build to rent asset will be valued off something around a four and a quarter cap rate. Co-liv is probably more like a five, student accom is sort of 7.5 to 5 so you get a little bit more income yield on your investment but the overall performance, you know, once the building is built is about the rent growth and I think you can see similar rent growth trajectory across the different asset classes. But really to answer the question in detail around the returns you've got to dive into the local neighbourhood and what's the potential of the rent growth for that specific neighbourhood that the asset is situated in. And Rhys will give us some great insights into how he selects his sites and which sort of locations he gets excited about as an operator and working with an investor.
Rhys Williams
Yeah, it's a very, very interesting question and really, I think becoming more interesting Andrew, because as you say our platform as it is now we operate 54 properties around Australia. Half of them are in co-living and build to rent, so about 27 assets there, and the other half are in hotels and serviced apartments. So, we look at things under the entire umbrella of living sector for our group and then we get to delve into the particulars of a site and try and establish what is highest and best use between for instance those three uses. And if we're doing mixed-use, how many hotel, how many co-live, how much BTR do we look at within a development? And each location is unique in terms of establishing sort of highest and best use. But you know, certainly some prime locations, you know, a hotel may be a higher and better use, but what we do find across the board is that having co-living in a feasibility helps support an overall project from a valuation perspective. And so we believe that this mixed use concept is going to be very, very important in the future of the living sector, which is I guess why, you know, we feel we're in a good position having the spread across hotel, serviced apartments, co-live and built to rent as well. And where it gets really interesting I guess within our platform is that we're able to cross fertilise people between those various use types to drive ultimately better returns for an owner. So if someone's coming into a serviced apartment product and they're staying there for a week, well, do they have a demand for a six-month studio? Well, then they can cross over into a co-living asset. Do they then have a demand for 18 months or two-year residential place where they can cross then from co-living into our furnished BTR products as well? And so that ability to move people within an ecosystem under one operational framework we think creates a very, very interesting position for us as an independent operator.
Kathryn House
Yes, so let's dive into more of the occupier side of co-living. Rhys, you gave Andrew and I a tour of your Alexandria facility in Sydney, and it was really impressive. The communal areas, it does feel like you're in a big living room. You know, you've got chessboards and games and great cooking facilities, a big barbecue area. I think Andrew, you and I both agreed we wish co-living was around when we were younger. I know I still have a little bit of PTSD about sharing a bathroom with a flatmate who clearly didn't know what a toilet brush was. But on a more serious note, one of the things I did find really interesting out of the tour was, Rhys, you talked about this not just being for young people. You've got senior business professionals based in other cities who are using your rooms as a hotel alternative, and older occupiers who like that sense of community. Can you tell us a bit more about your renters and why you think you are getting this really broad-ranging interest.
Rhys Williams
Yeah, look, the broad answer is that the key cohort going into co-living is people in the 25 to 35 age category. So definitely young professionals. And around 80% of those occupants would be single. And a greater weighting of those occupants is female. And so there are logical, natural reasons for that. Firstly, the 25 to 35 age cohort, they desire flexibility with their living arrangement because they may not know where their job is going to take them. They might want to come and try a new area, they might be a mobile worker who travels a lot, who doesn't, you know, need an excess space in their living arrangement. And then when we go beyond that, it's interesting, as I say, that it's 80% single. So it makes a lot of sense for a single person because they're not having to move furniture in, they're not having to make some long term commitment when they're not sure what life may bring them. But also obviously they can meet people in their building. So they're getting a social interaction, a wellness and mental health benefit which is really, really appealing. And often we find the female residents enjoy the security factor of having an on-site community host. But beyond that, as you say, Kathryn, it's very, very interesting to then look at the people outside of that, what we call the typical group. And you've got all walks of life which really make a rich community, as you say. You've got a lot of corporates, so we have corporates who might come to Sydney on a weekly basis who would rather have their own studio with their own gear in it. So, they'll just take a co-living studio on behalf of their company and have it as their place to come, you know, once a week for a year. And that's a lot nicer and a lot less lonely than being in a hotel because you actually got that sense of homeliness and comfort that you can come back to, and you get to meet other people who might be in similar professions to you within the building. And then you have people who might have been through a divorce or a separation, or you have people that simply want to have a city pad, let's say, or an urban pad. And they might have their place in the country or up the coast and they want to come in. And then you've got an interesting mix of internationals and domestics as well. And so that entire mix of people goes into what I guess I'd call the rich tapestry of a co-living community. And yeah, it's quite amazing to see it in action.
Kathryn House
So what kind of dollars are you getting for these? I mean, I know it would vary by location, but give us a bit of a guide and what that actually covers.
Rhys Williams
Yeah, so the rents range hugely because we're in a lot of suburban areas that you may not expect it to work. And that's another interesting discussion point. But we see rents ranging realistically from about $550 a week up to say $900 a week. And it strikes me as being absolutely ridiculous that if you're doing a 12-month rental, you go and buy your furniture, haul it up the stairs, put it in there, you know, you're talking about 5,000 bucks worth of furniture, probably all in. And then you, you leave after 12 months because your circumstance changes. You then go and sell all that for nothing because it's got not a lot of value once it's used. You then ship all of that out and then the next person comes and does exactly the same thing. It just seems a bit crazy. And it's not obviously great from an ESG perspective as well.
Kathryn House
No, I literally just did it. I rented for 12 months, bought stuff, then I've bought a place and ended up having to get rid of a lot of the stuff that I'd bought for this one-year rental. And I did do Marketplace selling. So, it was a circular economy. But I totally get what you're saying.
Rhys Williams
Yeah, and people get that too. And so, what they do is they go out into the rental market, and they look at the alternative options and they say, right, well, it's 700 bucks a week to get an unfurnished one bedroom, 45 square apartment. But I've got to buy the furniture, I don't know anyone in the building, I've got to set up my utilities. I don't know how long I'm going to be here because I don't know what my job's going to bring. And then a UKO ad will pop up through our very, very strategic targeted ad campaigns and it will sort of solve the problem that they know they have, but they might not have heard of the concept of co-living. And suddenly they think, okay, what is this? Oh, let me check it out. Either, you know, virtually or in person, and they get it. You know, you're only getting half the space as your own sleeping space. But then they start to see the value proposition of all these other things, and they see the amenity areas, which you wouldn't get in a normal rental, and they start to see value in that and therefore they don't have a problem paying a healthy return because it's a value proposition.
Kathryn House
So, Andrew, we've been talking predominantly about co-living in Australia, but I'd also be keen to get the international view. How are we tracking? Are we lagging behind? Are we up with some other countries around the world? Give us your take.
Andrew Purdon
Well, I think across all forms of living sector from an institutional perspective, we're lagging on all fronts in Aus at the moment, but we're catching up pretty quickly. Co-living has become hugely popular in a number of the Asian cities, particularly in Japan, Singapore, South Korea. So, there's very dense cities where people are used to rental accommodation, quite small spaces looking for the convenience and service that Rhys has described. So, you know, as Melbourne, Sydney, Brisbane densifies and there's no reason why this won't get going. And I think Rhys, you've got a project over in Perth, haven't you? You know, but we're definitely seeing this thematic for the big global cities. When you've got 2, 3, 4 million people in a city, there is a big place for this form of housing to accommodate the needs of renters. And just for context around that, I mean when you look at any of the east coast cities, in the city centre areas, at least 50% of people in those areas are renters. And in some particular neighbourhoods it can be as high as 70, 80% of people in those neighbourhoods are renters. So when the policymakers at state and federal and city level are thinking about the housing offering that the people need, this co-live concept has to be part of the wide offering that we're seeking.
Rhys Williams
To deliver in Australia, the concept of having these living sector assets near infrastructure is not foreign to us. I mean in our business, as I say, we've got 27 serviced apartment properties around the country and we're always looking to have accommodation in close proximity to infrastructure and we do have a number of those key workers who are coming in and occupying the furnished studio, co-living typology because it makes such sense for them because it's not punitive on their capital and they have the flexibility to come and go. So, I think for, you know, the essential workers, having co-living, furnished studios is an absolutely critical part of the housing mix as we go forward and the rents are set at a level where it's still palatable for these essential workers to make it work for them. And so, I think the more of that key worker housing flowing through the planning policies and the support around co living near infrastructure, critical infrastructure, this makes an absolute no brainer as far as we're concerned.
Andrew Purdon
I totally agree. And when you just think about the expense of renting and certainly buying in a city like Sydney, we've got huge infrastructure investment in health in particular, and clearly we've got huge infrastructure spend around the airport, we've got all this new metro coming. So, to attach specific typologies of housing which enables key workers to live close or conveniently to where they work, I think is a huge part of the evolution of the city and it makes the social fabric work so much better than people having to travel very long distances to get to a shift work type job. You know, it's pretty obvious stuff, but I'd love to see more deep thinking from the master planners and the policy makers around providing this style of housing alongside our critical infrastructure.
Rhys Williams
Yeah, it's interesting in that sense that we see co-living whilst being considered somewhat nascent. It really is in a lot of ways where purpose-built student housing was maybe 10 years ago, where from a planning perspective, from a valuation perspective, it wasn't understood and it needed, you know, pioneers to come in and bring that asset class to life so that planners could suddenly then see, actually there's no student housing in this country, it's not near universities and it's not servicing the inflow of students into this country that are vital to the economy. And now co-living as being nascent in that regard is on that journey as well. And there'll be a time in three years, five years and even now where, and we've done it a lot at UKO, we're taking the policymakers from state planning through our assets so they can understand how it can support a key worker, and they can see the benefit of this environment. And I will say, I guess on the planning side right now, at a national level, there's no congruence to the planning system when it comes to co-living. So in New South Wales you've got a SEPP, which is co-living, which provides an excellent sense of clarity for developers. If you look in Victoria, they don't have the same clarity around co-living from a planning perspective. So, each state, and sometimes each LGA, each local government area can have a different interpretation of what it is. And so, it's one of the reasons why we've got such a strong presence in the Sydney market is because there's that clarity around planning. And I think in time, you know, these other states will catch up, but, you know, it's another long discussion, but I think from a planning perspective, it would be really beneficial to have a national policy that deals with things like co-living so that development can actually move forward and progress in areas of critical infrastructure. And so hopefully we can do a small part as an operator in the education process in taking people through the physical assets, as we did with you, Kathryn.
Kathryn House
Well, I have so many more questions I could ask, but I think we've run out of time. We might have to circle back in a future podcast. Rhys, I loved the tour of Alexandria, all your co-lLiving insights and I can't wait to see what's next for UKO.
Rhys Williams
Thank you so much for coming through it. You know, before we did this podcast, Kathryn, because it really, I think gave you some great context and you can see a little bit of the future of housing in that. So it was really great to take you through.
Kathryn House
Yes. And I think, Andrew, you got a lot of insights too from walking through.
Andrew Purdon
I did indeed. You know, enlightening to think about that densification question, how do we drive viability? Get more projects coming out of the ground and we're definitely seeing within the multifamily space, more studios being part of the mix. And I think 100% studio product offering in the right locations will go beautifully as well. And thanks for the opportunity to talk, Rhys. It's great to hang out and we'll catch up soon.
Rhys Williams
Really good to hang out. Thanks guys.
Kathryn House
So, to our listeners, thanks for tuning in and make sure to subscribe to Talking Property so you don't miss our next episode, our Q3 House View with Phil Rowland and Sameer Chopra. And I'd love to hear any thoughts you might have for future episodes. You can reach me by emailing
[email protected].
Until next time.
