A critical housing shortage combined with a favourable planning landscape has been driving investment into co-living, making it one of the few real estate sectors with any active development.

Sydney, Australia, is 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. As such, Sydney has been the focus of more than 90% of total co-living activity in Australia.

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, according to JLL. 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 and is currently building out a A$750 million portfolio across Sydney and Brisbane in a joint venture with modular hotel chain Tribe (owned by Accor Group). Meanwhile, hospitality investor and asset manager Pro-Invest announced a A$500m equity raise in February 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,” says Gordon McFadyen, JLL joint head of metropolitan sales and investments, NSW.

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 quickly 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.

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, according to JLL research. Further clarity over migration and population growth over the past two years has helped accelerate construction.

Co-living is a sub-sector of the broader living sector, including built-to-rent and purpose-built student accommodation (PBSA) both of which have benefitted from increasing investor interest over the past couple of years.

However, plans to slow down student migration into Australia in 2025 may create temporary headwinds for the PBSA sector. In build-to-rent, impending tax changes combined with rising bond yields pushing up required returns is tempering investment. JLL expects both factors to drive investment further into co-living.

Australia’s economic strength is a major attraction for investors. Increased net migration, robust private and public investment and strong commodity exports continue to drive growth, with Australia expected to outperform other mature economies with a projected growth rate of 2.6%.

“Long-term market fundamentals including migration growth, historically low rental vacancy and an underlying supply demand imbalance for good quality housing are all supportive of further investment into co-living, drawing on learnings from more established markets abroad,” says Jack Bergin, head of living – capital markets, JLL.