As the UK rental market evolves in 2024, landlords and property investors are increasingly weighing their options between co-living spaces and Houses in Multiple Occupation (HMOs). Both models cater to a growing demand for affordable and flexible living arrangements, but they each come with unique benefits, challenges, and market trends. For landlords seeking to maximise their rental income while navigating the complexities of the rental market, understanding the differences between co-living and HMOs is essential.
What Are Co-Living and HMOs?
At their core, both co-living and HMOs involve shared living spaces where tenants rent individual rooms while sharing common areas such as kitchens and bathrooms. However, the two models differ in terms of property type, tenant demographics, and investment returns.
Co-Living: The New Wave of Community Living
Co-living spaces are purpose-built or converted developments designed to foster a sense of community. Typically found in urban centres, co-living properties attract young professionals, freelancers, and digital nomads looking for flexible, all-inclusive living arrangements. These properties often feature high-end communal facilities like coworking spaces, gyms, and social lounges, creating a lifestyle-focused environment.
Recent Data: According to Knight Frank’s 2023 UK Co-Living Market Review, the demand for co-living spaces has surged, with 2,500 new co-living bedrooms completed and opened to residents in 2023 alone. This marked a 65% increase in co-living units from 2022. The report also highlighted that a further 13,483 units are currently under construction or in planning stages across the UK .
HMOs: A Time-Tested Investment Model
HMOs have long been favoured by UK landlords due to their higher rental yields compared to standard buy-to-let properties. An HMO consists of a residential property that is rented out to at least three tenants who share communal spaces. Unlike co-living, HMOs are often older properties that have been converted for multiple tenants, making them more accessible in suburban areas or student-heavy towns.
Recent Data: Property investor platform Property Investor Today reported that average yields for HMOs remain strong, ranging from 8% to 12%, particularly in cities with large student populations like Leeds and Manchester . The HMO Property Blog confirms that HMOs continue to be a go-to option for investors looking to maximise rental income while managing tenant turnover . However, compliance with stricter fire safety and HMO licensing regulations introduced in 2018 by the UK government can increase costs, particularly in cities like London where additional licensing is required .
Key Differences to Consider
For landlords trying to decide between co-living and HMOs, it’s essential to evaluate several factors, including property type, tenant demographics, location, facilities, and potential returns.
Property Type
- Co-Living: Often purpose-built or large-scale conversions designed to create modern, hotel-like spaces with shared amenities such as gyms, coworking areas, and social lounges. Co-living properties are usually managed by full-time staff to maintain facilities and tenant services.
- HMOs: Typically converted from older residential properties like terraced or detached houses. The focus is more on maximising the number of rooms to rent, with communal kitchens and bathrooms shared by all tenants.
Tenant Demographics
- Co-Living: Appeals to young professionals, digital nomads, and those seeking community living. Tenants typically value flexibility and convenience, making them willing to pay premium rents for additional services such as cleaning and all-inclusive utilities .
- HMOs: Cater to a broader audience, including students, low-income workers, and young professionals. While demand is strong in student-heavy towns, landlords may encounter higher tenant turnover and more active property management.
Location
- Co-Living: Primarily concentrated in urban areas like London, Manchester, and Birmingham, where young professionals are seeking a mix of lifestyle and convenience. Knight Frank’s report notes that London remains a hotbed for co-living, but cities like Bristol and Leeds are emerging markets .
- HMOs: Found across the UK, including suburban areas and smaller towns. HMOs are particularly popular in cities with large student populations, such as Nottingham, Newcastle, and Liverpool.
Facilities
- Co-Living: Typically offers premium facilities such as high-speed internet, coworking spaces, and even gyms and on-site cafés. The “plug-and-play” lifestyle, where all services are included in the rent, makes co-living a more hands-off option for landlords once the property is fully operational.
- HMOs: Facilities in HMOs are generally more basic, with tenants sharing kitchens and bathrooms. Landlords may choose to include utilities in the rent, but high-end services are less common.
Investment Returns
- Co-Living: Premium facilities and a focus on lifestyle allow landlords to charge higher rents. However, initial setup costs are also higher due to the need for modern amenities and on-site staff. Knight Frank’s 2023 report estimated rental yields for co-living properties at around 6-8%, with potential for longer tenancies due to the community-driven aspect of the model .
- HMOs: Higher yields, typically ranging from 8-12%, are a major attraction. Initial setup costs are usually lower than co-living, but ongoing maintenance and tenant turnover can increase management responsibilities. HMOs also benefit from being more adaptable to a range of locations, offering opportunities for investment in areas where co-living may not be viable .
Co-Living or HMO – What’s Right for You?
Choosing between co-living and HMOs ultimately depends on your investment goals, budget, and desired level of involvement in property management.
- If you’re seeking premium rental income and targeting urban professionals, co-living may offer the best return, especially in larger cities. However, be prepared for higher initial investment costs and more intensive management due to the facilities and services expected by tenants.
- On the other hand, if you’re aiming for high yields with a lower barrier to entry, HMOs remain a tried-and-tested model, especially in suburban or student-heavy areas. While regulations can be more stringent, HMOs offer flexibility in a wider range of locations, giving landlords more investment opportunities.
Still unsure which investment model suits your property portfolio best? The Property Lifeboat is here to help you navigate the complexities of the rental market. Whether you’re interested in co-living or HMOs, we can provide tailored advice, management services, and hands-on support to maximise your returns. Contact us today for a free consultation and start making informed decisions for your next investment in Kent.
Let us navigate the waters while you focus on growing your property portfolio with confidence.
