Co-living is revolutionising city living

By Peter Young / EdgeProp Singapore | September 14, 2018 6:25 PM SGT
A new real estate asset class is attracting significant attention and pulling property investors back into cities such as London and Singapore.
Co-living apartment blocks offer private rooms that individuals can rent on flexible leases, starting from just a few days. In exchange for smaller private spaces, the apartments offer significant communal amenities that merge business and pleasure, with large living areas, shared kitchens and co-working desk spaces. Some co-living apartments even include gyms, spas, restaurants and cinemas.
London is suffering from low rental yields and declining house prices (Credit: Bloomberg)
These developments are drawing investors’ attention back to London, a city that is suffering from low rental yields and declining house prices. Co-living developments in the UK are appealing to the 17 million millennials and 1.7 million full-time students who live and work there. Currently, there are only 600 co-living beds available, so the opportunity is considerable.
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This is the real estate evolution that investors have been waiting for: city-centre living that is affordable and attractive to a new generation of renters who are looking to combine the benefits of the digital age with the comforts of modern life in central locations. The institutional interest is also increasing as this important market potential is finally being fulfilled.
In central London, rents have not kept up with the pace of house price increases after the global financial crisis, so yields have declined. Rents are at record highs, however, and the cost of living is exceeding earning capacity for many residents.
In central London, rents have not kept up with the pace of house price increases after the global financial crisis, so yields have declined (Credit: Bloomberg)
In London, average rents are £34,622 ($60,733) a year and average salaries only £34,473, so most people have to consider home sharing or long and expensive commutes to live more affordably. On the other hand, co-living rents are all-inclusive and competitive. The monthly rental fee covers your apartment, furniture, WiFi and utility bills, as well as access to communal amenities. This makes it easy for renters to budget and is up to 25% cheaper.
In Singapore, co-living apartments are primarily geared towards young expats whose short-term plans require a greater amount of flexibility. Early pioneers had an unsuccessful start even though occupancy rates were high. Recent entrants, such as Mamahome and Hmlet, are showing how the model can work in Singapore, even though issues of home affordability — which plague the likes of London — are minimal and the longer-term success of these developments has yet to be seen.
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In Singapore, home ownership stands at above 90% as HDB provides subsidised public housing for locals. This may uniquely limit the scope of co-living in Singapore to expats. So far, however, it has proven quite popular with the target demographic. When Hmlet@Joochiat was launched last September, it gained a 95% occupancy rate within six weeks of opening.
In Singapore, co-living apartments (Hmlet @ Sarkies pictured) are primarily geared towards young expats whose short-term plans require a greater amount of flexibility. (Credit: Samuel Isaac Chua/EdgeProp Singapore)
In London, the issues of affordability and availability are well known. Co-living has therefore become an affordable way for young Britons to live and work in the country’s capital and the development pipeline is strengthening.
It is still early days, but we are already seeing signs that this is an exciting asset class for investors to consider. The Collective was London’s first large-scale co-living development. Since it was built in 2016, developers have been quick to submit plans for new sites in key locations across London, including Canary Wharf and London Bridge.
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The Collective, no doubt inspired by the likes of other sharing economy pioneers such as WeWork and Airbnb, has since raised US$400 million ($552 million). Its expansion plans will take it to the US and Germany, as well as further sites in the UK.
The Collective, inspired by the likes of other sharing economy pioneers such as WeWork (WeWork at Beach Centre in Singapore pictured) and Airbnb, has since raised US$400 million ($552 million)
Co-living was recognised by the Greater London Authority as an accommodation class in its draft London Plan — a policy document that provides guidance to London councils.
Still, the definition of “co-living” is not yet clear and consistent. It is also important to ensure the location is right and the product will be institutional grade. The planned exit, and how it will be achieved with each specific product, is critical.
Peter Young is CEO of Singapore-based real estate private wealth company Q Investment Partners (QIP).
This article first appeared in EdgeProp Singapore on the week of August 20, 2018, Issue #844-65