LONDON • Real estate investment manager DTZ Investors and co-living developer The Collective have started the world's first major fund to buy and build communal housing in London, betting that lonely renters and sky-high house prices will make the niche sector mainstream.

According to a statement yesterday, the venture - called COLIV - is seeking £650 million (S$1.1 billion) in commitments and plans to invest in six to 10 projects in London.

The fund has £70 million of seed capital. Its managers aim to build a portfolio valued at about £1 billion over its 10-year life, with returns of 8 per cent to 10 per cent.

"We definitely expect a first-mover advantage," DTZ Investors chief executive Chris Cooper said in an interview.

The fund manager invested in United Kingdom student-housing landlord Unite Group in 2005, when purpose-built apartments for students were in their infancy. That bet has paid off handsomely.

Co-living developments provide small bedrooms or apartments with large common areas, selling customers on a sense of community and access to a wide range of amenities.

The handful of brands emerging in the UK and United States typically target young professionals who are priced out of buying their own homes.

COLIV's first investment is a 222-room building in London's Harrow section, due to be completed in 2021. As well as funding new projects, it will buy existing properties operated by The Collective during its four-year investment period.

The Collective currently has about 1,650 rooms and is developing 8,000 more in the UK, Ireland, Germany and the US, according to chief executive Reza Merchant.

The average age of its customers is 33 and the average yearly salary of tenants at its property in London's Old Oak is about £34,000, he said.

Critics of co-living point to the relatively high rents charged for rooms that are much smaller than normal studios or one-bedroom apartments.

Rates at The Collective's Old Oak, in the West London Willesden Junction district, start at £1,083 a month for a room designed for one person when rented on a 12-month contract, according to its website.

"We are very focused on the quality of the space we design, and by sharing, you get access to so much more," Mr Merchant said.

The Collective runs events designed to combat loneliness and bring people together. Its buildings' amenities include cinemas, libraries, spas and, at its Canary Wharf site, a rooftop swimming pool.

"Financial return is a very important objective," he said. "But for us as a business, we want to have a positive social impact."

BLOOMBERG