Communal appeal of co-living

WITH co-working space growing by leaps and bounds in Singapore, the development of co-living seems like a natural progression in our new, disruptive world. However, the speed of growth of the co-living market in Singapore has fallen behind expectations until recently. The co-living market in Singapore saw unprecedented activity over the past 12 months with millions of dollars of funds being pumped into operators, enabling them to embark on an expansion spree. Have the co-living players finally found a niche market for themselves here?

Origins of co-living

The idea of shared living spaces, which started in the Western world as early as the 19th century in the form of hostels or boarding houses for students, evolved into a more sophisticated form of home-sharing for adults in the early 2010s with the growth of the sharing economy. Today, co-living is catching on as an up-and-coming concept of living globally but it is still a largely untapped market in Singapore.

Looking back, the co-living journey in Singapore has not been all smooth sailing. Early entrants to the market, such as 13 and Techsquat, opened with much fanfare in 2014/2015 but were largely defunct within a year of operation after having to contend with financial, regulatory and cultural hurdles.

Co-living brought S'pore's accommodation offerings to another level

The hype in the co-living market was revived in recent times after it gained recognition as a convenient, community-driven and affordable solution for expatriates who are looking for a fun and fuss-free accommodation option.

Co-living addresses the millennial expatriates' housing needs by offering them a private space in a shared apartment with plenty of common areas for community activity. With the help of technology, operators are able to bring like-minded individuals together.

Community managers who are stationed in the cluster would also be organising regular social or work-related events to facilitate interactions among members.

New players who are looking for a share in the market include Singapore-based startup Hmlet, Shanghai-based startup Mamahome, and lyf, a new brand of living targeted at the millennials by The Ascott Limited. Their growth was aided by the government's move to lower the minimum rental period for private homes from six to three months in June 2017, making it more viable for co-living operators to target members who want flexibility in their housing options.

The entrance of these co-living operators actually added another layer of accommodation options for people looking for short- to medium-term housing.

The co-living business model is similar to hotels and serviced apartments

Co-living players operate on a similar business model as the hotel and serviced apartment industry. The only difference is that co-living operators have to lease out their space for a longer period of at least three months due to regulatory requirements.

In terms of holding structure, some operators may choose to purchase and fit-out their own co-living facility for more control and certainty of space. However, this slows their expansion plans and comes with illiquidity risks and compressed yields due to the high capital outlay required.

The majority of the operators thus go with the asset-light strategy of leasing bare residential units or an entire block from a landlord, retrofit them and then "sub-lease" the individual rooms to their "co-living residents". This model allows them to scale up fast but operators may risk losing control over their real estate cost and there is no guarantee of the continued availability of the business premises when their existing lease expires.

A number of operators also take on the management contract model where they sign long-term management agreements with developers or landlords to help them operate their co-living facility.

Additionally, there is a group of startups that are non-operators but they focus on developing applications and platforms to match roommates to the most compatible location, operator and/or room.

In Singapore, the more common form of co-living operation is the asset-light leased model. For example, when Hmlet first entered Singapore, it started with renting units at different condominiums from individual landlords.

To reap economies of scale, Hmlet subsequently also leased two entire residential buildings in Joo Chiat and Sarkies Road, and converted them to dedicated co-living facilities.

On the other hand, the business model of lyf, which is backed by Singapore's largest serviced residence operator, The Ascott Limited, is a mix of owner-operated and management-contract basis. Their first co-living facility in Singapore, lyf@SMU, is a Living Lab at the Singapore Management University (SMU) which The Ascott Limited has co-invested and co-managed with SMU.

For lyf's upcoming facility at Funan Singapore, The Ascott Limited, through its serviced residence global fund with Qatar Investment Authority, has reportedly paid S$90.5 million to CapitaLand Mall Trust, to acquire the land for the serviced residence component and will spend an estimated S$80 million to develop lyf's flagship co-living facility in Singapore. The Ascott Limited also won a management contract from developer Low Keng Huat to manage lyf Farrer Park Singapore which is expected to complete in 2021.

More players in Singapore could move into the owner-operator model soon. The JTC Corporation (JTC) has put up a pilot concept and price tender to build, own and operate a co-living development at Nepal Hill in one-north.

This facility will allow co-living residents to have their own bedrooms with an attached bathroom and they would share communal spaces such as kitchens, lounges and living/entertainment areas with other residents. This plot of land is zoned residential and will be approved for serviced apartment use to cater to residents who are envisaged to stay between two weeks and a year.

The tender for the site closed on July 30, 2018. The new facility should be ready by December 2020.

Co-living could address the needs of younger expatriates

In Singapore, co-living space primarily appeals to millennial expatriates. Demand was boosted by the rising number of single-household expats engaged on a contract basis or working on project assignments.

The one-stop services offered by co-living operators provide expatriates with an alternative accommodation option that is simpler than renting a conventional room and cheaper than renting a serviced apartment or hotel.

In the same light, some academics and students on exchanges with local universities also turn to co-living as a bridging accommodation option while they are here.

Barriers still exist among locals

There is a more limited market among the locals due to Singapore's small city footprint and high homeownership rate. The ability to unlock savings in their Central Provident Fund's Ordinary Account through property acquisition has contributed to Singaporeans' preference to buy rather than rent.

Additionally, the high cost of living and the culture of being provided for at home also mean that young millennials are less inclined to move out when they grow up.

This could be because they are reluctant to forego the creature comforts of their homes, preferring instead to channel their savings into buying their first property, with a view to securing some form of long-term investment.

Although the concept of co-living is gaining traction in Singapore, the bulk of the customer base, in the short term will likely still be from the young expatriates who currently form a minority group in Singapore.

While co-living is gaining popularity as a housing option among the millennials, the issue of financial constraint, that is, high rents, will always be on their minds.

It would be interesting to see if more local millennials will take a bite at this housing concept as they gain spending power.

The writer is senior manager at JLL Research & Consultancy.

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