Celia Harrison, Bridges Fund Management

The residential sector is a significant contributor to global carbon emissions. In the UK, which has some of the oldest and least efficient housing stock in Europe, the sector already accounts for about one-sixth of all UK carbon emissions. And that figure understates the problem, since it doesn’t include the substantial ‘embodied carbon’ that results from constructing new homes and demolishing old ones.

What’s more, the UK desperately needs to build more high-quality housing in the next decade – at least 300,000 net new homes annually, according to the Government – just to keep up with rising demand. So, this sector is not only a pressing social issue; it’s also a significant barrier to our Net Zero ambitions.

We believe co-living can help tackle both these challenges. And in doing so, it offers investors access to an attractive long-term growth market.

The value of co-living 

Co-living is a form of residential accommodation that combines smaller private homes with extensive communal spaces and shared amenities. The basic concept is hardly new – different forms of shared living have existed for centuries – but it is evolving and growing in popularity across Europe.

Co-living is inherently a lower-carbon living model: smaller homes require less heating and lighting, while the sharing of resources can reduce overall energy consumption, water usage and waste generation. One study found that the per capita carbon footprint of a co-living community was two-thirds lower than a standard household.

With our own developments, we look to supplement this through smart design, on-site renewables and clean energy supply, with the goal of making these buildings zero carbon (or at least zero carbon-ready) in operation. That’s appealing to tenants from both a cost and sustainability perspective.

Co-living can also have health and wellbeing benefits. Over the last 25 years, there’s been a 25 percent increase in the number of single-person households in the UK – and social isolation and loneliness can lead to poorer physical and mental health. So, we design our buildings to encourage and promote social connections, while also incorporating outdoor gardens, cycle provision and biodiversity initiatives. In another study, 82 percent of residents in a co-living community said living there had improved their quality of life.

Retrofitting and embodied carbon

Co-living is an obvious way to address the shortage of high-quality homes. But for planners – particularly in urban environments – it can also be a great way to repurpose under-used or inefficient old buildings.

In partnership with the developer HUB, we recently acquired an office building in Beech Street, next door to the Barbican in London, which has been under-occupied since the pandemic. We are seeking planning permission to retrofit the existing 1950s office building to deliver a highly sustainable 175-bed co-living scheme, right in the heart of the City.

From a sustainability perspective, retrofitting typically involves less embodied carbon than demolishing and rebuilding – particularly if developers (for example) incorporate lower-carbon materials, source goods locally, and minimise waste in the construction process. All told, this can reduce the embodied carbon of a development by up to 50 percent.

Of course, retrofitting may not always be possible. By conducting a whole-life carbon assessment at the start of each project, we can understand the carbon implications of various development options; sometimes, it may not make sense to retrofit if we are to comply with the latest planning regulations and sustainability standards.

But if we are to have any hope of reducing residential carbon emissions by 97 percent in the period to 2050 – as Science-Based Targets suggest we must – there needs to be a big focus on reducing embodied carbon. Retrofitting old buildings to create sustainable homes can support that.

A sustainable growth opportunity

The co-living model is growing in popularity with planners and residents, and it’s easy to see why: it’s a way to create high-density, sustainable residential communities that benefit both people and the planet.

For sustainable investors, this makes co-living a highly compelling growth market. There is a clear opportunity to acquire stranded assets, at attractive entry prices, and re-develop or convert them into prime real estate with long-term, future-proofed income streams – generating attractive financial returns while also supporting better social outcomes and the decarbonisation of the built environment.

The co-living developments are in early stages at the moment but the fundamentals for long-term growth are good and we anticipate delivering good investor returns over time.