Alternative Co-Living Arrangements Gain Popularity in Urban Asia Pacific Cities

By Michael Gerrity | April 12, 2019 9:04 AM ET

Convenience to key Urban centers and cost efficiencies driving co-living trend

According to JLL's recently released Co-living in Costly Cities - Asia Pacific report, the co-living market is taking off in Asia Pacific as more people migrate to cities for jobs or education opportunities. This is opening up new opportunities for real estate developers and investors around the region.

With property prices rising in gateway cities, co-living offers residents shorter and more flexible lease terms compared to condominiums, as well as ready-to-move-in convenience. According to a case study in the report, operators could save up to 25 per cent in expenses over the traditional renting model.

At the same time investors also stand to benefit from significant savings. By working with co-living operators that play a multi-functional role - the building manager who handles maintenance, property manager who collects rent and letting agent who sources for tenants - it eliminates the need to pay the three different layers of fees in a traditional residential property.

"Co-living bridges a housing gap that traditional living categories do not support," explains Rohit Hemnani, COO and Head of Alternatives, JLL Asia Pacific. "Since co-living spaces are fully furnished with cleaning and maintenance services, tenants only need to deal with one operator instead of paying for deposits, utilities, furniture, and agent fees."

"The co-living business model varies significantly due to lease structures and ownership models," he adds. "Many co-living operators are asset light, so they work from a profit-sharing lease or management agreement, while others prefer fixed market-based leases where they can guarantee landlords a fixed income over a longer period. Due to the ability to scale operations, co-living operators can potentially provide higher incomes to property owners and deliver efficiencies around cleaning, furniture and utilities."

Although the co-living sector is still in its early stages of development in most parts of Asia Pacific, JLL predicts that it will evolve to appeal to a larger and broader tenant base over time.

Touted as two of Asia's costliest cities to live in, Singapore and Hong Kong have a small number of established operators seeking rapid expansion, despite the lack of space. Singapore has seen its fair share of co-living investments, including Hmlet's funding from Aurum Investments and Sequoia India and Singapore Management University's partnership with The Ascott Limited to manage lyf@SMU. Meanwhile, Hong Kong's underperforming hotels and serviced apartments are converting to co-living spaces as building owners seek to improve rental yields.

Denis Ma, head of research at JLL in Hong Kong said, "The shift away from simply a form of affordable housing towards a lifestyle choice is also drawing a new wave of investors into the Hong Kong co-living sector. Over the past 12 months, a number of new schemes have opened where rents that are on par, if not higher, than in the private rental market. The success of these new schemes is redefining the basic assumptions used in underwriting co-living investments." 

Elsewhere, the rapid evolution of China's multifamily rental market has made it one of the most developed co-living markets in the world. Several developers have actively bid on land sites earmarked for rental property and set up their own branded co-living operators.

By contrast, Australia has been lagging behind due to the undersupply of multifamily en bloc products and tax policies on residential rental businesses. But residential market prices are softening, prompting more developers to shift towards the burgeoning built-to-suit sector. 

"Over time, we're likely to see co-living take a higher market share in Asia Pacific as tenants continue to drive demand and investors chase higher yields. Higher consolidation activity is also on the cards as smaller players will get absorbed by bigger players with more built-to-suit products available in the market," concludes Nick Wilson, Head of Capital Markets Research, JLL Asia Pacific.

Anthony AcevedoComment