Investors bet big on worker dormitories amid rising rents and supply crunch

INVESTOR interest in foreign worker dormitories has risen in 2024, with more purchases by those looking to take advantage of the supply shortage and escalating bed rents, according to a report by Knight Frank and the Dormitory Association of Singapore Limited (DASL).

Foreign worker dormitories can generate high yields for the owners as demand presently exceeds the limited supply of dormitories, said Leonard Tay, head of research at Knight Frank Singapore.

Some of the transactions made in 2024 include Homestay Lodge, a worker dorm located at 31 Kaki Bukit Avenue 3, that was sold to BBR for S$63.5 million.

Bain Capital was also said to be nearing a deal to acquire Blackstone’s Singapore worker dorm firm Avery Lodge for S$750 million. Avery Lodge has four purpose-built worker dormitory compounds with a total of about 1,700 units in Kian Teck Avenue, Jalan Papan, Tampines Place and Woodlands Link.

The average islandwide bed rent was S$460 per bed per month (pb pm) in 2024, up 70.4 per cent from the pre-pandemic bed rent of S$270 pb pm.

It also represents a 10.8 per cent increase from the average islandwide bed rent of S$415 pb pm in the second half of 2023.

In the second half of 2024, centrally located dormitories such as those in the Sembawang and Marsiling districts, had the highest bed rents, with an average of S$510 pb pm.

This was followed by those in the east which averaged at S$475 pb pm. In the west, where there is the highest number of dormitories and beds, the bed rent average was S$390 pb pm.

Knight Frank and DASL estimate bed rents to increase by 5 to 8 per cent in 2025, as demand for dorm spaces remains elevated.

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Rising demand

This increase in demand comes amid Singapore’s increasing infrastructure projects, as well as the expected rise in the size of the workforce of the construction, marine shipyard and processing (CMP) industries, the report noted.

Based on a basket of Class 4 purpose-built worker dormitories aggregated by DASL, the islandwide average occupancy rate has surged to 96.7 per cent in H2 2024, from 73.7 per cent during the pandemic in H2 2020.

Only Class 4 worker dormitories, which house 1,000 or more beds, are reviewed in the report. This is because these assets comprise the “most representative class in what is broadly an opaque market”, said Knight Frank and DASL.

Declining work activity during the pandemic in the CMP industries led to the falling number of foreign workers. But as Singapore’s economy began to recover post-pandemic, occupancy levels in all dormitories “have been near full”, they added.

Dormitories in the east and west were almost fully occupied in H2 2024, while those in the central zone fell in H2 to 93 per cent from 98.1 per cent in H1 2024.

Limited supply

Meanwhile, the supply of dormitory beds is expected to decrease following the announcement of the Dormitory Transition Scheme and New Dormitory Standards by the Ministry of Manpower (MOM).

Existing dormitories will need to be refurbished to meet the standards set in the scheme by 2030. They will subsequently transition further to meet the ministry’s new standards by 2040.

Under the scheme, a maximum of 12 workers can occupy a room and en suite toilets are to be provided for every six workers.

“This will likely lead to the decrease in the number of beds per room that will have a domino effect on the number of beds islandwide, especially during periods when dormitories begin the process of upgrading existing space to meet the new standards,” noted the report.

MOM’s worker dorm in Tukang Innovation Lane is expected to be ready by early 2026. It will have a capacity for 2,400 workers housed in 210 rooms. Its other owned and self-developed dorm in Sengkang will only be ready by 2028.

“Given the difference in the type of ownership structure between the MOM-developed dormitories and the rest of the industry, it will be interesting to observe how an even keel can be maintained for the dormitory market in the future,” said Knight Frank and DASL.