Co-living gains traction in Singapore

By Bong Xin Ying

/ EdgeProp Singapore |

December 29, 2019 6:00 AM SGT

SINGAPORE (EDGEPROP) - Early in the 19th century, shared living spaces were a norm, found in the form of hostels and boarding houses for students. Home sharing has since evolved with the times, especially with the growth of the sharing economy in the modern age.

Co-living, according to JLL Singapore, refers to all-inclusive communal living, where tenants enter into individual lease agreements in exchange for private bedrooms, shared community spaces and building amenities. While co-living players operate on a business model similar to serviced apartments, the difference is that co-living utilises private homes for a longer period, notes JLL in its report, “Co-living in Singapore”.

Gaining traction as an alternative to traditional residential leasing in a globalised world, “co-living provides opportunities for interaction in a communal living set-up which is appealing to many younger expatriates”, says Ong Teck Hui, senior director of research and consultancy, JLL Singapore. In traditional residential leasing, tenants rent a room or a single apartment.

Ong also notes that the bulk of the demand for co-living “still comes from expatriate tenants, although interest from local millennials who are seeking greater independence and who have the financial means has also increased”.

Govinda Singh, executive director of valuation and consultancy services at Colliers International, shares the same view. He adds that the current demographic – a mixture of millennials and Generation X’ers – may include seniors in the future.

Co-living operators in Singapore

Currently, there are at least eight co-living operators in Singapore. They include Singapore-based start-up Hmlet; Shanghai-based start-up Login Apartment; CP Residences, owned by founder and former banker Wendy Yap; lyf, by The Ascott Ltd and targeted at the millennials; and 85SOHO, the co-living brand of LHN Group. There are also local start-ups, Easycity and Cove. The latter was founded in 2018 through the start-up generator Antler, which secured in September 2019 a seed funding of more than US$2 million ($2.7 million). This will be used for their expansion in Southeast Asia, and to build out their technology.

Overseas co-living brands like Commontown have entered Singapore as well. Owned by South Korean construction company Kolon Global Corp under its subsidiary Libeto, Commontown was founded in Seoul in 2017. It moved its headquarters to Singapore in 2018 as a strategic base for its global expansion plans.

Living room of a penthouse unit at The Lumos, by Login Apartment (Credit: Samuel Isaac Chua/ The Edge Singapore)

Different models of co-living

In Singapore, for properties zoned under residential use, URA regulations state that a minimum three-month stay is required. On the other hand, for co-living firms who are operating on sites approved for serviced apartment use, they are able to offer short-term stays with a seven-day minimum stay period; while for those with a hotel licence, daily rental services are available.

In terms of holding structure, some operators may choose to purchase and fit out their own co-living facility for more control. With a higher capital outlay required, this comes at a risk of higher illiquidity and compressed yields, in turn slowing down expansion plans.

According to JLL, most operators choose to go with the “asset-light” strategy. This means leasing out individual residential units or an entire block from a landlord, retrofitting the property, and then subleasing it out. Although this may allow companies to scale up fast, operators, however, have no control over their real estate costs. There is also no guarantee of the continued availability of the premise once the existing lease expires.

Hmlet, for instance, adopts this leasing strategy. More recently, Hmlet has opened its largest facility to date, at 150 Cantonment Road, the former Corrupt Practices Investigation Bureau headquarters. Situated near Tanjong Pagar MRT Station, the building is on a 76,000 sq ft site and offers 150 individual rooms up for stay across two 3-storey blocks.

Apart from this model, some operators run on the management contract model. This is when they sign long-term management agreements with developers or landlords to help run their co-living space.

lyf, for instance, is a mix of owner-operated and management contract models. lyf Funan Singapore, which opened in September 2019, has a gross floor area of about 121,000 sq ft and comprises 412 rooms across 279 apartments. In the next three years, two other lyf properties in Singapore are slated to open. These are lyf Farrer Park Singapore which will open in 2020, and lyf one-north Singapore which will open in 2021. Zoned under residential use, lyf one-north Singapore will be approved for serviced apartment use, catering to residents who are expected to stay for between two weeks and one year.

There are also start-ups that are non-operators. They focus on developing applications and platforms to match roommates to the most compatible location, operator, and/or room.

lyf at Funan is a mix of owner-operated and management contract models (Credit: Samuel Isaac Chua/ The Edge Singapore)

Staying competitive

According to JLL’s Ong, co-living operators can stay competitive by scaling up to gain market share, establish their brand name and enjoy economies of scale. Another strategy would be product differentiation, and targeting niche markets.

“Some operators try to focus on creating a unique experience for their tenants such as holding talks, craft workshops, hackathons or other community events which foster greater interaction and bonding,” he says.“Other operators develop their own apps so as to enable members to manage bills, get invites to the latest events, get in touch with housemates, book housekeeping services and more.”

Outlook

The short, flexible leases may be one of co-living’s main draws, but Ong cautions that this could also be a risk factor. As the co-living operators often sign long-term lease with landlords but earn their revenues through shorter-term rental agreements, Ong says that operators “need to be wary of the volatility in its revenue streams, especially during the times when economic slowdown may negatively affect the leasing demand from foreign tenants”.

In Singapore, where the home-ownership rate is about 91%, co-living operators face another challenge – demand for co-living tends to be mainly driven by expatriate tenants, Ong notes.

“The current economic slowdown is expected to continue into 2020 and business conditions are likely to remain challenging. Hence, cautious hiring and businesses restructuring may have some negative impact on leasing demand for co-living from foreign tenants,” says Ong.

Colliers’ Singh, however, expects “some growth in this sector in the short to medium term, filling a gap in the market between the traditional private residential model with its longer-term contracts, higher pricing and inflexibility, and the serviced apartment model, which again can be quite expensive”.

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