Hotels are reinvented as co-living spaces as adaptive reuse gains momentum
The Sydney Potts Point Central Apartment Hotel was once the place for travellers looking for a couple of nights of accommodation in Sydney’s centre, but as business dwindled, the original art deco building came up for grabs.
It was bought in May 2025 for $31.5 million by global multi-manager BGO Strategic Capital Partners and the Sydney-based Hotel Capital Partners, and now operates as a chic co-living space after undergoing a modern yet sympathetic renovation.
This adaptive reuse project is a prime example of how former hotels are being repositioned as co-living spaces to reflect both changing living preferences and the growing appeal of renovating rather than building from the ground up.
“Elevated construction costs and long delivery timeframes have fundamentally altered the feasibility equation for new development,” said Karen Wales, head of hotels at Colliers.
“Converting well-located, under-invested hotels allows capital to be deployed quickly and with far less execution risk, making these assets incredibly attractive in a high-cost, low-certainty environment,”
Co-living, which combines private accommodation with shared communal amenities and flexible lease arrangements, has emerged as one of the fastest-growing segments within the broader “living sectors” market, according to Colliers, making it a strong play for investors.
Why hotels are well-suited to conversion
As many older hotels face growing expenditure requirements and increasing pressure to meet environmental and sustainability standards, more owners are reassessing whether it makes sense to continue operating them as traditional hospitality assets.
For investors, this is creating a window of opportunity. Well-located hotels can often be acquired at a cost below that of developing a new building and repositioned as co-living accommodation, unlocking value from assets that may otherwise require significant refurbishment.
However, the strategy is not universally applicable. In markets where hotel performance remains particularly strong, the economics of conversion can be harder to justify, as short-stay accommodation may continue to deliver higher returns. As a result, co-living conversions are typically most attractive for older or underperforming hotels that already require substantial upgrades.
Beyond the financial equation, many hospitality buildings already contain the structural elements suited to residential conversion.
Guest rooms can be reconfigured into micro-apartments or studios, while former lounges, bars and meeting spaces translate naturally into shared kitchens, co-working areas and communal living zones designed to encourage interaction among residents.
“Conversion programs are relatively light [thanks to the pre-existing framework], enabling investors to acquire, reposition and stabilise assets far faster than ground-up development would allow,” Wales said.
Repurposing existing buildings can also shorten delivery timelines and reduce construction costs. Sustainability considerations are increasingly influencing decision-making, with adaptive reuse significantly reducing embodied carbon compared with demolition and rebuilding.
Local investors warming to the co-living model
Co-living has been well-established overseas for some time, with tenants in major high-density cities such as London, New York, and Hong Kong embracing the model, particularly young professionals, digital nomads, and mobile workers, who increasingly seek housing that offers flexibility, convenience, community, and affordability.
Co-living developments are designed to meet these needs, combining private accommodation with shared amenities such as kitchens, lounges, gyms and workspaces. The model also allows residents to live in well-located urban neighbourhoods at a lower cost than traditional apartment living.
“The combination of longer stays, lower operating leverage and strong demand fundamentals makes co-living a highly resilient investment. In an environment where speed, certainty and capital efficiency are paramount, hotel-to-co-living conversions offer one of the most attractive pathways to scalable returns,” said Wales.
In Australia, Colliers anticipates ongoing growth within the sector as developers, operators and institutional capital recalibrate to elevated cost structures and persistent demand for flexible, affordable living solutions.
As investment strategies increasingly converge across living-sector models of BTR, student accommodation, co-living, build-to-rent and hospitality, the ability to pivot and adapt assets to evolving demand is becoming a strong driver of attractiveness and long-term value.
