Singapore’s maturing co-living sector draws more investor interest
By Timothy Tay
/ EdgeProp Singapore |
The exterior of 1557 Keppel Road, a co-living property by Coliwoo. The company is the largest in Singapore with about 20% of total market share. (Picture: Samuel Isaac Chua/The Edge Singapore)
SINGAPORE (EDGEPROP) - The co-living sector in Singapore is quickly growing out of its nascent stages into a more mature space. A sector report published by JLL explains that post-pandemic, the co-living market here has become more consolidated with a wider range of occupier profiles comprising expatriates and locals.
The report, titled “Co-living in Singapore: Here to stay”, outlines the prevailing co-living landscape in Singapore, the major movers and shakers in the sector, the investment flows sustaining the growth, and the challenges stakeholders face.
This builds on a 2019 report by JLL titled “Co-living in Singapore: Communal living at your convenience”, which provided a snapshot of the burgeoning co-living market at the time as an alternative to conventional accommodation options in Singapore.
Co-living is not a specific planning typology in Singapore. Under URA’s land use guidelines, all co-living spaces use residential, serviced apartment or hotel property types. Thus, co-living accommodation exists within the planning guidelines as a marketing concept that refers to developments with living spaces and communal facilities that offer various social and community bonding programmes.
The minimum length of stay in any co-living space in Singapore is governed by the respective property types and zoning they fall under. The shortest is for co-living properties zoned as hotels, which can be rented out at a daily rate. Such units have a minimum unit size of 118 sq ft.
Co-living spaces that occupy a serviced apartment have a minimum length of stay of seven days and a unit size of at least 377 sq ft. Co-living residents in a residential property are subject to the longest minimum duration of at least three months, with a minimum unit size of 377 sq ft.
Product evolution
In Singapore, the co-living market has responded to a shift in consumer preferences and accommodation expectations. This has spurred the evolution in the layout and fit-out of newer co-living rooms and apartments, says Chia Siew Chuin, head of residential research, JLL Singapore.
“There is a trend towards more private rooms equipped with their own kitchenette, washer-dryer, en suite bathroom and TV. This is driven in part by a greater emphasis on personal health, hygiene and wellness, as well as a desire for greater privacy and convenience among co-living residents,” she says.
One example is the new entrant Weave Living that launched its first co-living product in Singapore in March. It opened Weave Suites — Midtown in the historic Kampong Glam neighbourhood. The 65-room serviced apartment property occupies a contiguous row of 17 two-storey conserved shophouses along Jalan Sultan.
Hong Kong-based Weave Living debuted in March with Weave Suites – Midtown. (Picture: Samuel Isaac Chua/The Edge Singapore)
In addition to offering six different unit layouts, each room is largely self-contained with fitted-out living areas, although there remains a focus on shared spaces and amenities such as a fully fitted kitchen, gym, and hot desk space on the ground floor.
Chia notes that private rooms tend to command a premium over conventional co-living arrangements, which typically have more shared spaces and amenities and fewer self-sufficient rooms.
In general, operators have been quick to understand guest requirements. “We expect co-living products to continue evolving as operators seek to meet the changing needs and preferences of residents,” says Chia.
Consolidation in sector
At the same time, the profile of operators has shifted dramatically in recent months, says Tan Ling Wei, senior vice president, investment sales, Asia Pacific, at JLL Hotels & Hospitality Group. “The Singapore co-living market has undergone significant restructuring in recent years, with mergers and acquisitions becoming a common strategy for key players looking to expand their market share and reach new customers,” she says.
For example, Hong Kong-based co-living operator Dash Living bought over local operator Easycity in 2020. This was a strategic move that enabled the foreign-based operator to break into the Singapore market.
Local player The Assembly Place also acquired the property assets of Libeto, another Singapore-based co-living start-up, in 2020. The deal included the properties managed by its co-living arm, Commontown Singapore, totalling approximately 120 rooms. This helped The Assembly Place consolidate its market share and enhance its accommodation offerings.
Another homegrown brand, Hmlet, was acquired by European co-living company Habyt in 2020. This was a strategic move by the European firm to break into the Asia Pacific market and become a more competitive global player.
“Overall, the trend towards consolidation in the co-living market is driven by the need for companies to reap economies of scale and stay competitive in a rapidly growing and evolving industry,” says Chia.
She adds that as global demand for co-living spaces continues to increase, more mergers and acquisitions are on the horizon as companies seek to expand their presence and accommodation offerings.
Players and stakeholders
According to the JLL report, there are at least 20 active co-living players in the Singapore market and approximately 9,000 co-living rooms across the accommodation market. This figure includes strata units leased out by individual owners to co-living operators to manage on their behalf.
JLL research indicates that the three largest co-living operators in Singapore, based on total units under management and in the pipeline, are: real estate management services company LHN Group’s Coliwoo brand; start-up operator The Assembly Place; and another homegrown brand Bespoke Habitat.
Collectively, these three companies account for approximately 50% of the total co-living supply in Singapore. Other notable players include Hmlet, Cove, Dash Living and Myposhpad. Moreover, the presence of co-living brands that are backed by traditional developers or hospitality groups contributes to stiff competition in the local market. An example is lyf by The Ascott.
Overall, Chia says that the Singapore co-living market is becoming “increasingly competitive and innovative, which augurs well for consumers looking for affordable and flexible housing options”.
She adds that JLL is tracking close to 800 more co-living units set to enter the market between 2Q2023 and 3Q2023, and it expects up to 2,100 new co-living units to enter the market by the end of this year.
At the moment, the government seems to be supportive of the growth of the co-living sector. The Singapore Land Authority (SLA) launched a tender for a renewable five-year lease of a state-owned property at 79-95 Hindoo Road in March. The property comprises a row of 18 apartment units housed in a 1920’s two-storey building. It sits on a 14,186 sq ft plot with a gross floor area of 18,367 sq ft. It has been re-adapted for residential (co-living) use.
The tender closed on April 26 and the results are expected to be released by end-July. According to the SLA website, 16 bids were submitted, and the bid rents range from $7,250 per month to a high of $68,000 per month, which was submitted by construction firm Eco Energy.
Other state-owned properties currently in use for co-living include Hmlet Cantonment at 150 Cantonment Road, and Coliwoo Keppel at 1557 Keppel Road.
So far, most co-living operators have opted to remain within the Central Region and some city-fringe neighbourhoods such as River Valley, Geylang and Little India, due to their proximity to the CBD. The latter are more appealing to younger professionals who tend to be more price-sensitive but also value convenience, says Chia.
Demand drivers
According to JLL, the surge in demand for co-living is attributed to short-term market shocks and intervention measures by the government. “The pandemic and regulatory policies have created transitory demand for co-living due to temporary imbalances in Singapore’s residential market dynamics,” says Chia.
Examples include pandemic-induced construction delays that fuel the demand for interim leasing options from locals and long-term residents. “Co-living leases are an attractive temporary solution as they offer flexibility to tenants with their monthly renewal options,” says Chia, adding that this source of demand is likely to be short-term as the bulk of projects hit by delays are expected to be completed by the end of this year.
Soaring rental rates and higher interest rates are also pricing out some home buyers and renters. Research by JLL indicates that private property prices in Singapore have climbed by about 20.1% over the past two years, while rents in prime neighbourhoods have climbed 42.5% over the same period.
The exterior of 9 Jalan Besar, the flagship co-living hotel of The Assembly Place. (Picture: Samuel Isaac Chua/The Edge Singapore)
In addition, a “prohibitive” additional buyer’s stamp duty for foreign buyers means that foreigners who were previously planning to buy a home in Singapore may have to continue living in rental accommodation at least for the short term, says Chia.
“Co-living fills the gap in the tight rental market and has become an attractive option that offers more affordable and flexible living arrangements to those unable to commit to longer-term rental agreements,” she says.
Rising investment allocation
In Singapore, the co-living market has shown strong cashflow stability and operational resilience, successfully riding out the pandemic, says Tan. “The potential for the co-living market in Singapore goes beyond transitory demand factors. Structural shifts suggest that the demand for co-living spaces will continue to grow in the medium to long term,” she says.
For example, homeownership attitudes are gradually shifting in favour of renting, particularly among younger professional singles and couples. In addition, a rebound in the expatriate population is expected to support a more buoyant short-term accommodation market, says Tan.
As a result, the sector is pulling in more attention and capital allocations from investors, such as private equity funds, family offices, real estate developers, co-living operators and institutional funds.
Most co-living investors and operators are set to achieve strong operating margins of 65% to 85% on the back of relatively low staffing ratios and a market characterised by very low vacancy rates, says Tan. “Despite the stable income and low vacancy, most investors still consider co-living as part of their value-add or opportunistic investment strategies, with an expected internal rate of return hurdle of between 15% and 18%,” she says.
This investment attitude stems from the relative infancy of the co-living market in Singapore. “The lack of existing build-to-rent assets also means that investors would have to take on conversion risk to repurpose commercial buildings such as hotels into co-living spaces,” says Tan.
But as the sector continues to grow in the coming years, JLL expects co-living assets to command a higher yield of between 4% and 5%, compared to traditional office assets which are typically stabilised at about 3.5% to 4%.
“As the market continues to mature, driving stabilised performance and liquidity, we expect the stabilised return expectations for co-living to converge towards those of traditional office assets,” says Tan.
Challenges on the horizon
In an effort to de-risk their co-living investments, Tan says that many private equity investors are either on the lookout for underperforming hotel assets in the region to turn into potential co-living spaces, or are seeking co-investment with local and regional operators.
Converting underperforming hotels into co-living spaces has been successful in Hong Kong and investors there are turning their eyes to Singapore to replicate this, where they see significant growth potential, says Tan.
Joint investments have already made their mark in Singapore, such as the debut of Weave Living in March. The Hong Kong-based operator acquired the property, the former Hotel Clover, through an 80:20 joint venture with mainboard-listed builder SLB Development.
However, the lack of suitable assets, as well as an uncertain legal and regulatory framework, could stymie this sector in the long run, says Chia.
She explains that the lack of greenfield build-to-rent development sites in Singapore means that operators have had to turn commercial buildings, shophouses and hotel assets into suitable co-living properties. Purchasing residential stock to scale up is not financially feasible due to the high capital values in Singapore, says Chia.
Players such as Figment have made it their calling card restoring heritage shophouses and leasing them for residential purposes. LHN Group has boosted its portfolio with commercial acquisitions and subsequently co-living conversions.
Finally, it is still unclear how the government will shape the legal and regulatory frameworks for co-living properties. Prevailing minimum stay durations that are tied to land zoning, as well as limits on the capacity of different housing types, might also have to evolve to keep pace with the maturing of the co-living sector here, says Chia.
Looking ahead, she says that as the market expands and more operators enter the space, further consolidation and standardisation will likely occur that will generate greater scale and efficiencies.
“The tailwinds driving medium- to long-term rental demand, greater regulatory transparency, and increased awareness and understanding of co-living as a viable housing option, will further enhance investor confidence and attract a deeper and more diverse pool of buyers and capital sources,” says Chia.
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