Social distancing has thrown the whole concept of co-living into question.

Things had been looking so good for the nascent sector as pioneers such as The Collective went from strength to strength and started expanding internationally.

Then came the Covid-19 pandemic, which forced people living in what are by design tight-knit communities to stay 6ft apart.

So just how does a sector based on the concept of close-proximity living deal with social distancing? Will the lockdown stop the embryonic sector in its tracks or will the underlying trends that led to its emergence in the first place prevail?

The immediate challenges posed by the lockdown are sizeable and range from having to deal with rent shortfalls from residents who have lost their jobs or fallen on hard times to safely moving in new residents. This month is when the full impact is expected to be felt for the first time as people’s April paychecks are hit.

“A number of operators have set up hardship funds and hardship panels to deal with that,” says David Butler, chief executive of the UK Apartment Association, a BTR trade association that covers co-living.

However, he admits, it is not easy to sign up new residents at the moment and the process of moving them in is “a bit patchy”.

“We’re learning new ways of doing virtual tours and virtual letting and even giving virtual instructions for people when they move in,” he says. ”That is an emerging pattern.”

Meanwhile, operators say they are working hard to keep existing residents happy. While communal areas have had to be closed for the most part, operators such as The Collective are holding building-wide digital events at its London developments to help residents engage with each other.

Less lonely

“It’s a difficult time to be bringing people together, which is what co-living is about,” says Harry de Lotbiniere, land director at The Collective’s development partner Hurlington Properties.

“But it is still much less lonely in a co-living building than it would be in a studio flat on your own. If you have the health and safety and social distancing right, then at least you have other people there.”

From an investor perspective, demand is pretty resilient. It is the operators that rely on short-term leases that face real problems, says Richard Lustigman, director of living capital markets, co-living, at JLL.

“Diminishing consumer confidence and reduced mobility will impact demand during this period of uncertainty, and we could see increased downside risk from co-living operators that have targeted flexible, short-term leases, which present immediate risks to income,” he says.

Looking ahead, delays to the construction supply chain will inevitably slow co-living’s growth, especially as new developments become liable for council tax and the number of lettings slows down. But Lustigman is confident the sector will pull through.

“Co-living, like the broader living sectors, has defensive investment characteristics, benefiting from stable cashflows and the ability to actively manage rents in order to maintain occupancy and limit void potential,” he argues, adding that the concept will adapt to the new post-lockdown reality.

“I suspect as we emerge from the current climate, co-living, when it is designed purposefully, will be a model for mixed-use buildings of the future, where one can live, work and maintain a fulfilling lifestyle under one roof,” he says.

De Lotbiniere remains upbeat about the sector’s long-term prospects. “In the grand scheme of things, this will be a short-term problem,” he argues. “We believe in the long-term fundamentals of the business model and we are still very confident about it.”

The sector just has to overcome those short-term challenges first.