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Living out of the box

Samantha Chiew
Samantha Chiew • 12 min read
Living out of the box
Lyf one-north Singapore at 80 Nepal Park is managed by The Ascott, the lodging business unit of property giant CapitaLand Investments. Photo: lyf
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Amid stress-inducing high property rents, co-living spaces are looking increasingly attractive for expats and locals

Despite higher interest rates, prices of residential properties in Singapore continue to scale new highs, driven by investors who remain enamoured with this asset class, and real demand for those who want a home to call their own.

The series of government property cooling measures, including the most recent round on April 26, is of cold comfort to many looking for a temporary place to rent in the past two years or so — only to find asking rents reaching new highs too. Many of these tenants have turned to the emerging co-living sector as an alternative to renting their self-contained apartments.

This was the case for 30-year-old Singaporean Christabel, who has been living at co-living space Figment in Orchard Road for the past 10 months. For Christabel, the location caught her attention as she is frequently in the central area for leisure and work.

On choosing a co-living space rather than renting a unit, Christabel says: “I wanted something short-term with a flexible lease that I could end any time on short notice. Property and rental prices were and are still inflated, so I was not keen to lock in to a long-term lease at a high price.”

While Christabel aspires to eventually own her own house, she is currently still enjoying the perks of the co-living space at Figment, such as the maintenance and utilities provided, weekly cleaning services and the social events.

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However, Christabel notes that even the rental prices in her co-living space are increasing and “the new rates no longer making financial sense”, hence she has decided to terminate her lease at Figment and it is back to the drawing board for her to look for an affordable place to live.

Post-pandemic, overall private residential rents were up 29.7% in 2022 and have risen 42.7% since the trough in 3Q2020. The surge has priced certain segments of the population, such as students and entry-level corporate hires with a budget on accommodation, out of the standard residential market, which demands a lease of at least two years, says Tricia Song, CBRE’s head of research, Southeast Asia.

The benefits of co-living spaces include being located in a prime location with comparable prices to renting in condos and HDB estates, as well as amenities that are readily available and space that is move-in ready. Song notes that co-living spaces can also give people a “bang for their buck” if the tenants are willing to compromise on space and form, such as renting a small pocket room and utilising a shared toilet and common areas.

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Besides a fully furnished room in a property located in a convenient area, a co-living property offers services such as room cleaning, aircon maintenance and social events to bring tenants together. Some of these co-living tenants are attracted by the short-term temporary accommodation of at least three months, where they do not need to sign a long lease. Such terms make it perfect for couples waiting for their new homes to be ready or expats coming in for a short-term project.

Co-living spaces are especially popular with foreigners, as there is a certain level of trust in co-living spaces and simplicity in securing their leases. “Some tenants find it is a simpler process with online registrations and reviews and it comes with more certainty given a corporate counterparty, compared to having to negotiate with individual homeowners or agents, or engaging in a bidding war with other competitors,” adds Song.

PhillipCapital’s head of research Paul Chew says that demand for co-living spaces has risen in line with the surge in the residential rental market. Apart from the high rental prices, several factors have made co-living spaces seem more attractive, such as construction delays, increasing resident population, absence of Airbnb in Singapore, and co-living providing a more affordable urban and community lifestyle.

Emerging trend

Big and small companies are capitalising on the growing popularity of co-living. According to Wong Kar Ling of The Ascott Limited, the lodging business unit of property giant CapitaLand Investments (CLI) 9CI -

, co-living is an emerging trend in urban cities like Singapore, where there are an uneven supply of housing and high housing costs. Wong is Ascott’s managing director, Southeast Asia, and head, strategy and global operations.

To ride this trend, Ascott has set up the lyf co-living brand. “With lyf, guests get a unique accommodation option that combines the best of serviced residences, hotels and co-living apartments,” says Wong.

However, co-living is not for everyone. “lyf properties are designed to enable guests to ‘live your freedom’ in a dynamic environment where they can forge connections and nurture a strong sense of community through social spaces and experiential programmes,” says Wong. She adds that guests at the lyf properties are predominantly aged between 26 and 35 years old, and can be best described as “next-generation travellers such as digital nomads, technopreneurs, creatives and self-starters”.

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For CLI, lodging management is another way to grow fee-related earnings (FRE). In FY2022 ended December 2022, Ascott and its hospitality brands, including lyf, achieved strong operational performance with a rebound in global travel. Ascott’s revenue per available unit rose 40% y-o-y on the back of higher average daily rates and occupancies across the group. In FY2022, Ascott also generated $258 million in FRE globally, a 36% y-o-y increase. This represents 26% of CLI’s total fee-related earnings.

FY2022 was also a record year of signings and property openings for Ascott, with 33,000 units signed across 160 properties, representing a 20% net room growth. In 2022 alone, Ascott opened a record of over 9,300 units across 45 properties, including three lyf properties in Singapore, Shanghai and Melbourne.

The first lyf property was opened in 2019 in Singapore. Since then, the brand has expanded to 22 properties in 18 cities globally. These include eight operating lyf properties in Singapore; Melbourne, Australia; Hangzhou and Shanghai in China; Fukuoka, Japan; and Bangkok, Thailand, says Wong.

Wong adds that with the ability to accommodate guests on extended stays and the flexibility to take in short stays, occupancy rates at the three lyf properties in Singapore — Funan, one-north and Farrer Park — have been robust over the last few years and are currently averaging at more than 85%.

Ascott has plans to launch another 13 lyf properties over the next few years, including its first lyf properties in Sydney, Australia; Tokyo, Japan; and Vienna, Austria, which were already signed last year. This year, seven lyf properties are slated to open in key cities: Kuala Lumpur in Malaysia, Xi’an in China, Tokyo in Japan, Bangkok in Thailand, Cebu and Manila in the Philippines, and Vienna, Austria.

“With the increasing demand for co-living spaces, we have seen strong growth momentum for the lyf brand and are targeting to expand our portfolio to 150 properties by 2030,” says Wong.

Smaller players, a bigger proportion

While Ascott may be a small portion of the larger CLI pie, other locally listed players, such as LHN 41O -

, are placing a proportionally bigger bet on the co-living trend.

Previously, LHN focused on subleasing industrial spaces, space optimisation and logistics. With its logistics business spun off for a separate listing, LHN is happy to call itself a “pure-play property company”, says Kelvin Lim, executive chairman, executive director and group managing director of LHN.

In focusing on this market, LHN has been making several big moves. In February, for example, it paid $80 million for the GSM Building to convert the retail and office property along Middle Road into a co-living and retail space. Compared to the likes of CLI — which has a market value of some $20 billion — LHN’s market capitalisation is around $100 million.

In Singapore, LHN owns and operates the co-living brand Coliwoo. Lim feels this was a natural progression from its existing space optimisation business that refurbishes and renovates properties for a more optimised space. It first started its venture into the co-living space when it had the opportunity to optimise and lease its property in Cantonment to co-living operator Hmlet.

From then, LHN created its brand and launched its first Coliwoo space in September 2020. Less than three years later, it has 12 Coliwoo properties across Singapore and has big plans to expand further to meet the increasing demand for co-living spaces in Singapore. Lim aims to have 2,500 rooms by the end of this year. It currently has about 2,000 rooms.

Lim says there are many ways to expand within the broader co-living sector. The Coliwoo brand currently targets foreign expats and students coming into Singapore, but LHN is looking to expand its co-living capabilities and reach out to different target audiences, such as providing worker dorms and senior living spaces.

Lim believes LHN has a certain advantage over many competitors, many of which are start-ups with the capital to operate and not own. LHN does not merely operate the co-living business, it also owns some properties that operate co-living spaces. The co-living start-ups have a somewhat short leasing agreement with the property owner to operate their business. The leasing agreement can be as short as two years, which may provide some sense of insecurity.

“Co-living operators who own or have a long-term lease over their properties should have better control over their pricing and continue to be competitive vis-a-vis the traditional residential market,” says CBRE’s Song.

When a market is growing, funding will follow. In the 2022 flagship grant programme by the DBS Foundation Grant Programme to support both social enterprises as well as small and medium-sized enterprises, Red Crowns Senior Living was awarded along with 22 other awardees.

A total of $3 million will be disbursed to scale the growth and impact of these grant awardees, who will join the foundation’s growing community of over 100 businesses for impact in the bank’s key markets.

Recognising Singapore is home to a rapidly ageing population, Joshua Goh, founder of Red Crowns, developed a co-living concept for older adults with concierge medical assistance services to live comfortably and independently. The company provides concierge solutions for co-living seniors to share housing rentals and caregivers.

The DBS grant will help scale its footprint in Singapore, expand to international markets and offer support to low-income elderly groups.

Future of space

The industry’s demand and supply dynamics are about to change, and lofty rentals might ease. CBRE’s Song says 17,427 private residential units are expected to be completed in 2023, the highest number of completions since the 20,803 units in 2016. “This significant injection of new rental stock would alleviate the tight supply situation,” she says.

However, Song believes that co-living will feature for the long haul in Singapore. Amid slower economic conditions, Song believes that foreign employment is likely to be subdued moving forward, and rental demand from foreign hires may moderate, causing rental growth momentum to moderate too.

Even if rental growth moderates over the next two years due to supply and softening economic conditions, Song does not expect rents to plunge. On an absolute basis, she reckons that rents will still be elevated due to higher interest rates, replacement costs and property taxes.

On top of the increasing competition, the industry may start to see some consolidation or reorganisation. European co-living player Habyt has already been on an M&A spree. In April 2022, it absorbed Hmlet. This merger came hot on the heels of Habyt acquiring two other Europe-based co-living companies: Milan-based Roomie in March 2022 and Frankfurt-based homefully in June 2021.

In January, Habyt announced a merger with North American co-living operator Common. With locations in over 40 cities and 14 countries across three continents, the combined entity will operate over 30,000 units that vary from co-living to studios and traditional rental apartments. This makes Habyt one of the largest co-living companies globally.

Looking forward, Habyt is planning to make new concepts like multi-generational and community-based living a reality, but it is also aiming to create the models of the future to serve even more demographics.

“Our new combined resources present a fully digital, easy solution to access rental properties across the world, something that has been historically derailed by endless paperwork or bureaucracy,” says Habyt’s founder and CEO, Luca Bovone.

With increased property cooling measures in Singapore, which make it more costly for people to invest in properties, the future supply of properties for rental is likely to decline. And while demand for rental units continues to grow, perhaps the demand for co-living spaces will grow.

“Increasingly, we are seeing more digital nomads and self-starters preferring to work remotely and looking for novel experiences and opportunities to connect. This momentum will continue in the years to come, especially as hybrid working becomes a mainstay in today’s digital world,” says Ascott’s Wong.

PhillipCapital’s Chew is also positive on the outlook for the co-living sector. He says: “We expect rents to continue to grow but at a slower pace. Over the next two years, there will be almost 30,000 private residential completions. This will dampen rental growth, but an offset is foreign demand with the reopening of borders. The reopening will attract the return of students, new business set-ups and project work, plus further growth in the resident population. The recent spike in stamp duties on foreigners’ purchases may also push some demand into rental housing.”

Chew admits that this is a new and growing hospitality category that satisfies the unmet demand by residents for hassle-free, flexible and urban living that is cheaper than serviced residences.

Hence, Chew’s stock pick with exposure to the sector is LHN. “We expect the company to enjoy both rental and capacity growth in its co-living operations over the next two years,” he says

Read more: LHN confident about outlook as it rides co-living boom

Read more: Asset-light investing in co-living for Bespoke Habitat

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