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Flight To Quality - The Growing Demand For The Professional HMO and Co-living Property.

Mark Burns | 4th May 2024

HMOs, or houses in multiple occupation, have been a proven investment opportunity for many years, and as of 2024, it is estimated approximately 475,000 HMO properties are operating throughout the UK.

In recent times however, the HMO market has been subject to a seismic shift in demand, with tenants beginning to seek higher quality accommodation. As a direct result of this shift in tenant demand, a new type of HMO asset class is emerging – the high quality or Professional HMO.

What Is A High Quality or Professional HMO?

Also known as luxury HMOs or boutique HMOs, this class of HMO offers an aspirational shared living experience aimed at young working professionals and similar.

Far removed from the traditional perceptions of HMOs, this new breed of Professional HMO or co-living property offers a similar standard of accommodation to a good quality (3*+) hotel or serviced apartment.

These properties boast quality fixtures, fittings, furnishings and appliances, with more spacious bedrooms, quality contemporary kitchens, communal areas and bathrooms, and increasingly frequently ensuite facilities.

What Is Driving This Demand?

The cost-of-living crisis is with doubt the main driver of this increasing demand for high quality, shared accommodation. Today, rising prices mean even young professionals, traditionally the core pillar of the UK buy-to-let market, cannot afford to rent an entire property in many regions of the UK, let alone London.

Interestingly, recent report have shown that this 'lack of affordability' is not restricted to the city centre regions, and is now increasingly prevalent in the more suburban district were property is often cheaper.

Although the rising cost of living is the key driver for this increased demand for professional HMO or co-living accommodation, it is certainly not the only one. In recent years, changes lifestyle have resulted in more young professionals focusing on communal living as a more cost-effective solution to renting on their own.

In many instances, this actually represents a relatively seamless transition from the type of living that they experienced during their college or university days.

As such, co-living with like-minded housemates is a rapidly increasing trend – especially amongst recent graduates. With students becoming more discerning tenants in recent years (think about the rise of PBSA market in the past 10 years), this growing demand for higher quality accommodation amongst recent graduates looks set to become a more long-term trend in the UK rental sector.

Without doubt, this increased emphasis on higher quality HMO or co-living accommodation will be increasingly driven by tenant demand. As these types of properties become more prevalent in the market, it is likely that increasing numbers of potential tenants will be demand a similar specification in finish in their building.

Overall, this ‘flight to quality’ is a positive for the UK HMO market, with demand moving away from the lower quality offerings so typical of the past. Whilst this does undoubtedly place pressure on landlords to upgrade and potentially rethink their buy-to-let property offering, the higher rents on offer do also represent an opportunity to maintain robust investment returns on their property.

Summary For Pure Investors

Source: Paragon Bank, The HMO Report 2022

Examples of Professional HMOs for sale through Pure Investor

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