Competition in Singapore co-living sector cranking up

DEMAND for co-living spaces in Singapore levelled up over the last two years. But with more operators pushing into the niche residential space, competition has cranked up at a time when demand may be pulling back.

A wave of demand originated from Singaporeans turning to co-living as a more affordable solution when residential rents surged in 2021 and 2022. Operators also saw local renters who were waiting for their flats to be completed, and young professionals driven to look for space to work from home. The recent boost, however, may be winding back.

The local segment made up 7 per cent of co-living tenants pre-pandemic, before peaking at 34 per cent in the fourth quarter of 2021, according to a December 2022 report by Cushman & Wakefield. The proportion has fallen to 18 per cent in Q4 2022.

Operators report strong occupancy of at least 80 per cent. But as local demand rose as a result of the pandemic, Cushman & Wakefield expects overall demand to recalibrate lower while remaining above pre-pandemic levels.

Supply, meanwhile, has grown. Last year, more than 677 units were added to the current supply, which Cushman & Wakefield estimated at under 10,000 co-living rooms.

The market is dominated by big players. LHN’s Coliwoo, The Ascott Limited’s lyf, The Assembly Place (TAP), Hmlet and Cove hold more than 5,000 units. New entrants include Bespoke Habitat and Weave Living.

As at Dec 9, 2022, data collated by Cushman & Wakefield indicated that LHN’s Coliwoo had 32 per cent market share, TAP held 23 per cent, The Ascott Limited’s lyf had 17 per cent, Hmlet 14 per cent, and Cove 14 per cent.

Over the last few years, LHN moved aggressively into the space, spending over S$90 million acquiring buildings which it converted into co-living properties.

It now holds 1,673 units across 12 properties, and targets 2,500 keys by end-2023.

Most recently, the listed real estate management company controlled by Fragrance Limited bought GSM Building for S$80 million; it plans to use some of the space for co-living.

In November 2022, LHN said co-living revenue jumped 39 per cent for the full year, offsetting a 24 per cent drop in its core facilities-management business, and propping up earnings.

Co-living typically attracts young expatriate professionals and international students looking for lower prices and flexible terms. “Co-living helps to fill the gap in the tight rental markets,” said Sing Tien Foo, the provost’s chair professor of real estate at the National University of Singapore.

LHN executive chairman and managing director Kelvin Lim observed a new group of tenants at the company’s latest Coliwoo property near Mount Elizabeth Hospital – medical tourists seeking short-term accommodation who find hotels too expensive.

Lee Nai Jia, PropertyGuru head of real estate intelligence, data and software solutions, said demand from students was expected to be sustained, as more individuals are likely to take up a second degree to expand their skill sets in times of uncertainty.

In a co-living space, tenants pay monthly rent which could range from S$1,500 to S$4,500 for a fully-furnished room and shared facilities, instead of renting the entire apartment. Minimum stay is three months, compared with private home leases that run from 12 to 24 months.

For hospitality operators, residential units can give greater yield via subletting of individual rooms, said Cushman & Wakefield.

Market watchers point out that co-living operators that lease premises are themselves squeezed by higher rents, and boutique operators are likely to bear the brunt of it. “If rental rates continue to rise, co-living operators will be displaced,” said LHN’s Lim.

Eugene Lim, founder of TAP, noted that while co-living operational costs are still lower than serviced apartments, cost is higher due to an increase in utilities and maintenance fees.

“The high rental costs and lack of supply of ready apartments designed for co-living could increase operating costs,” said Sing.

For example, the median rent for a 3-room HDB flat in Serangoon was S$2,500 in December 2022, according to HDB’s rental data. A room in Serangoon by boutique co-living operator Cove, which leases landed properties, now costs between S$1,500 to S$2,300.

On average, LHN’s Coliwoo unit size is 220 square feet (sq ft), and a bedroom with a private bathroom ranges from S$2,800 to S$3,500 a month. Weave Living offers a 120 sq ft single occupancy bedroom with a private bathroom from S$2,520 a month.

At Bespoke’s properties, monthly rent starts from S$1,300 for a regular bedroom and S$1,700 for a bedroom with an en suite bathroom. TAP’s regular bedroom averages S$2,000 a month, while a room with attached bath starts at S$2,600.

Amid the increasing competition, some consolidation is expected.

“The co-living industry has gone through some level of reorganisation where there have been acquisitions and mergers of operators,” said JLL senior director and head of residential research Chia Siew Chuin.

Singapore-based startup Hmlet found itself financially strained from rapid expansion and in April 2022, merged with European co-living startup Habyt. TAP acquired Commontown’s Singapore assets in March 2022 via a share swap agreement.

Knight Frank Singapore’s head of consultancy Alice Tan believes that co-living operators will have to innovate in terms of ambience, service offerings and more, to retain market share.

Operators which own or have a long-term lease over their properties should also have better control over pricing, allowing them to continue to be competitive against the traditional residential market, said Tricia Song, head of research at CBRE South-east Asia.

“Larger players tend to enjoy economies of scale and will be well-placed to survive should the rental market weaken,” Tan added.

Hospitality operators such as The Ascott Limited and Weave Living also own licences for the property that give them some agility. For example, lyf @ Funan has a hotel licence and can offer a minimum stay of one day, whereas a co-living licence requires at least a three-month stay. Hong Kong-based Weave Living, which launched its first Singapore property recently, has a hotel license as well. (*see amendment note)

TAP is also expanding into serviced apartments, to cater to a growing pool of customers who require shorter term accommodation.

Lam Chern Woon, Edmund Tie head of research and consulting, posits that growth in the co-living sector will be relatively insulated from the performance of the rental market, unless there is a significant rental correction.

“The growth of the co-living model is likely due to growing demand for new living formats, rather than spill-over demand from high rents in the traditional housing sector.”

Sachin Doshi, Weave Living’s founder and chief executive, is optimistic. He said the implementation of market cooling measures has made it hard for people to invest in properties. As such, the pool of rental housing supply is shrinking, while demand for good quality rentals, especially in prime locations, is increasing rapidly.

*Amendment note: An earlier version of the story said that Weave Living has a serviced apartment license instead of a hotel license. Weave Living has clarified that they hold a hotel license but only allow a minimum lease of six days.