The global housing market is currently defined by a stark paradox. On one side sits a rising demand for flexible, community-centric living options, driven by shifting household demographics and a loneliness epidemic. On the other, sits a wall of capital-pension funds, private equity, and family offices desperate to deploy liquidity into resilient assets. Yet, connecting these two forces remains a complex engineering challenge fraught with regulatory friction, valuation uncertainties, and high interest rates. As industry leaders gathered at the Coliving Conference 2025 in Barcelona, Spain, the conversation focused on the hard economics of viability. As the coliving sector scales, it faces a critical juncture - how to professionalise the asset class without losing the community ethos that defines it.

Is the Era of the Digital Nomad Over?

In its initial stages, coliving was perceived as a transient solution for the flighty digital nomad. While that market remains, the data suggests a profound shift toward longevity and older demographics, challenging the assumption that shared living is solely for young people.

In the UK, the numbers paint a picture of stability rather than transience. According to Chris Theodosiou, Residential Valuation Partner at Allsop LLP who has valued nearly £ 2 billion in sector assets over the last year, the tenant profile has evolved into something far more permanent. Recent studies indicate that half of tenants are now looking to stay for twelve months or longer, with renewal rates hitting 70%. Perhaps most surprisingly, the average age of a resident has increased to 31, with a quarter of tenants over the age of 40. This suggests that coliving is a preferred lifestyle choice for mid-career professionals seeking amenity-rich environments.

Conversely, the Australian market is tackling a different structural gap. Stephen Burt, Managing Director at Hotel Capital Partners, notes that while long-term needs are met by Build-to-Rent, and short-term needs by hotels, there is a vacancy for medium-term accommodation ranging from two weeks to six months. This captures a diverse cohort - the corporate relocation, the university researcher, or the divorcee needing temporary accommodation before buying a new home. In this context, coliving acts as a high-occupancy bridge, running at near 98% capacity simply because the traditional rental market is too rigid to accommodate life's transitional phases.

In Germany, the driver is less about tenure length and more about a severe mismatch in housing options. Rainer Nonnengässer, Managing Director at omniLiv, points out that in major urban hubs, 70% of households are single occupancy, yet less than 10% of the rentals offer units below 40 m². The demand is not just for community, but for efficiency. The market is demanding smaller, smarter units that the legacy housing stock - which has catered to families for decades - cannot provide.

Can Distressed Assets Solve the Supply Crisis?

With construction costs and land prices remaining high, developers are increasingly looking to retrofit existing structures rather than breaking new ground. However, his strategy requires a precise alignment of physical asset characteristics and government incentives.

Germany offers a compelling case for the adaptive reuse of obsolete office space. Following the "great reset" of interest rates and the post-pandemic shift in working patterns, banks are sitting on portfolios of distressed office assets. Nonnengässer highlights that while converting these buildings is technically demanding, it is currently the only viable route for developers. The German state provides subsidies covering up to 35% of construction costs for transforming outdated offices into residential space. For an equity investor seeking a 15% - 20% internal rate of return, this subsidy is the difference between a viable project and a non-starter, especially given that new build projects struggle to become a reality under current financing costs.

In Australia, the conversion strategy takes a different form. Investors are acquiring underperforming short-stay hotels and repositioning them as coliving assets. By stripping out the high operational costs associated with daily room turnover - such as front desk staff and daily housekeeping - operators can radically alter profit margins. Burt notes that shifting a property from a hotel model to a medium-term coliving model can increase Gross Operating Profit (GOP) from 30% to 80%. Even with slightly lower top-line revenue, the efficiency gains result in a significantly higher Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA), making the asset attractive to private equity investors who are underwriting aggressive returns of around 16%.

The UK market remains more cautious regarding conversions. Institutional funds generally prefer new build assets because they offer "future-proofing" against tightening energy efficiency standards and building safety regulations. While private family offices may still find value in smaller conversion schemes, the heavy weight of institutional capital is chasing purpose-built assets that guarantee longevity and compliance from day one.

Capital Demands Scale and Certainty

The flow of money into the sector is global, but it is far from uniform. Capital is becoming increasingly discerning, seeking specific risk-adjusted returns that vary by region and operational model.

In continental Europe, the development landscape is dominated by foreign equity. German institutions, bound by strict risk regulations, have largely stepped back from development risk, leaving 90% of the market open to international players from the United States, Asia, and the United Kingdom. These investors are often looking to aggregate large portfolios of Purpose-Built Student Accommodation (PBSA) and micro-living assets to achieve economies of scale. However, policy constraints remain a potent deterrent. Recent regulatory shifts in the Netherlands, for instance, have spooked investors, leading major players like Greystar to exit. This serves as a warning to policymakers that capital is mobile, and unpredictability regarding rent controls or industry policy will send it elsewhere.

For the United Kingdom, scale is the primary objective. Institutional investors have identified a "sweet spot" of 300 to 400 beds per asset to maximise operational efficiency. Valuations are reflecting this confidence, with stabilised assets trading at yields between 4,1% and 4,75%, depending on location and quality. However, there is a debate on the ideal size of a community. While funds push for large-scale "factories" of 400 rooms to drive net operating income, operators like Burt argue that community - which is the true value of coliving - fractures once a property exceeds 150 rooms. The challenge for the industry is then to reconcile the financial demand for volume with the human need for connection.

Navigating the Regulatory Grey Zones

The single greatest point of friction for the sector might be planning policy. As coliving scales, it often finds itself in a regulatory grey zone - neither fully hotel nor fully residential - creating both headaches and opportunities for savvy developers.

London exemplifies this complexity. The planning environment is fragmented across 32 boroughs, with some embracing the concept and others actively blocking it to protect traditional housing targets. A major emerging trend is the use of the C1 (hotel) use class to bypass stringent affordable housing requirements associated with residential developments. Developers are securing consents for "serviced apartments" that effectively function as coliving schemes, allowing stays of up to 12 months.

Theodosiou explains that this "loophole" is financially seductive as it removes the obligation to provide affordable, on-site units, which can account for up to 35% of a traditional scheme. However, this route is not without its trade-offs. Operating a C1 asset incurs VAT and business rates, inflating operational costs by approximately 15% to 17% compared to a Sui Generis residential consent. Furthermore, institutional funds with strict residential mandates may view these hotel-consented assets with caution.

In Germany, the regulatory threat is more straightforward. With rents in major cities soaring for three consecutive years, the political pressure to intervene is mounting. The industry is watching anxiously, knowing that misguided rent caps could freeze the development pipeline just when supply is needed most.

The Key to Unlocking Capital & Policy Levers

Occupancy rates hovering near 98% and strong renewal data demonstrate that the coliving product resonates deeply with a modern, urban population. The question is no longer whether people want to live this way, but how the industry can deliver supply efficiently in a high-cost, high-regulation environment.

To unlock the next chapter of growth, stakeholders must internalise several practical realities. First, flexibility in asset strategy is paramount. The binary choice between new build and retrofit is false; the most successful platforms will be those that can pivot between subsidised conversions in distressed markets and purpose-built developments in high-growth hubs. Finally, regulatory agility is a core competency. Understanding the nuance between a hotel consent and a residential license is not just a legal detail, but a fundamental driver of the financial model. By mastering these levers, the industry can move beyond the "medium-term" and cement itself as a permanent, essential fixture of the global housing landscape.