Co-living providers look to higher demand

More Vaccinated Travel Lanes expected to open up, with more expats and locals returning to Singapore

Jan 10, 2022

CO-LIVING providers anticipate higher demand in 2022 after a sanguine 2021, with more Vaccinated Travel Lanes (VTLs) expected to open up and more expats as well as locals return to Singapore.

For Hmlet, which has been operating and managing co-living properties since 2016, this was already evident in Q4 2021 when it saw a 35 per cent quarterly rise in enquiries and bookings, said chief real estate officer Joshua Li.

Most of the growth is coming from customers who are currently overseas, said Fang Low, co-founder and chief executive officer of Figment. The company has seen an 80 to 100 per cent increase in enquiries during Q4 from customers who will be arriving in Singapore in the coming months, he said.

Demand comes from a mix of business travellers as well as Singaporeans coming home, mostly from the UK, the US, and Australia, he said.

"Young Singaporeans who are working or studying overseas have become accustomed to living independently, so they might prefer renting their own accommodation as compared to staying with their parents," he said.

The Assembly Place (TAP) founder and chief executive officer Eugene Lim said every 3 out of 10 enquiries TAP receives are from overseas customers, up from the 1 out of 10 seen earlier in the year.

Some renters planning to arrive in 2022 have already signed their leases online after attending virtual tours, Lim said.

In spite of the recently frozen VTL ticket sales, co-living providers remain optimistic. Low said: "These travel restrictions will manifest as short term headwinds on the foreigner-heavy Singapore co-living market, but I am still bullish, especially in the long term as overall co-living penetration is still relatively low."

While demand for co-living has increased over the last two years, Low noted that he "imagined it would have been even better without the pandemic". In 2021, Figment, which manages 125 rooms in 25 shophouses, saw a 95 per cent occupancy rate, he said.

That said, last year a number of Hmlet's top executives, including chief executive and co-founder Yoan Kamalski, stepped down following difficulties attributed to the pandemic. The startup also downscaled its portfolio - it declined to give details - and pulled out of operating in Australia, Malaysia and Thailand. Meanwhile, it raised US$6 million of funding from investors, including Burda Principal Investments and Sequoia Capital.

In November 2021, TAP raised S$5.5 million in a seed round led by Oxley Holding's executive director and deputy chief executive Eric Low See Ching. Other investors included PropNex Singapore's chief execuitve Mohamed Ismail and Knight Frank Singapore's group managing director Wendy Tang.

Co-living providers Hmlet, TAP, and Figment mainly operate on a management contract system. They serve as property managers to asset owners, made up of mostly individual investors and some family offices. For TAP, manager fees are about 15 to 20 per cent of the rent revenue.

To accommodate the growing demand, co-living providers are looking to acquire new clients and supply more co-living space.

In January 2022, TAP will launch 50 new bedrooms spread across condominiums in the River Valley, Tiong Bahru and Holland Village areas, as well as three shophouses at Jalan Besar comprising a total of 17 bedrooms.

The company is also scheduled to open a co-living hostel comprising up to 180 beds at Perak Road in March, Lim said. He added that TAP is looking to add more units in River Valley as the area is popular among expats.

With these new properties, TAP, which started operating in 2019, will have close to 550 rooms across 16 buildings. It has targetted to have 1,000 rooms by the second quarter of 2022, Lim has said.

Figment, which operates only in shophouses, will be launching 3 properties at Geylang and 1 at River Valley in Q1 2022. The shophouses offer about 5 bedrooms each. When Figment started operating in 2018, the boutique hospitality company managed 4 shophouses comprising 20 studio apartments. As at end-2021, its portfolio consisted of 25 shophouses with 125 studios. Low hopes to expand this to up to 37 shophouses by end- 2022.

Hmlet will also be expanding, but is "unable to share details at the moment", said Li.

In line with the Urban Redevelopment Authority's regulations, the properties will be leased out for a minimum period of 3 months. However, co-living operators say that tenants stay for an average of 6 to 9 months.

The typical expat renter is a single Employment Pass holder, often working in startups or the tech industry. They travel frequently for work, so they look for short-term leasing options in Singapore, the co-living providers said.

"When the travel lanes open up, I expect them to stay and base themselves in Singapore. Now we're so used to online conferences it's not necessary for us to travel overseas to attend meetings, unless they are urgent," Lim said.

Lim and Li anticipate longer stay durations in 2022, while Low expects travel to take place more frequently on account of VTLs, leading to shorter leases.

Local demand is here to stay

Meanwhile, the manpower crunch in construction during the pandemic lengthened delays for build-to-order flats, private condominiums as well as renovation projects.

This drove local demand in co-living, as the readily-available furniture and utilities made the spaces a convenient temporary home.

However, as the backlog of delayed projects starts clearing out in 2022, providers expect some local renters to end leases. Despite this, the providers remain optimistic that local demand will persist, specifically from younger Singaporeans.

"There is a shifting sentiment among millennials and Gen Z cohorts towards postponing traditional home ownership aspirations and deciding to rent a home to live independently first," said Li.

The past two years have also seen young single millennials moving out of their parents' homes after work from home (WFH) became the norm, as they looked for more conducive spaces for work.

Despite the recently updated workplace measure - from Jan 1 up to 50 per cent of employees who can WFH are allowed to return to the office - co-living providers believe that this customer segment will not be shaken.

Lim said: "Hybrid working models are likely here to stay. And therefore people will still want to rent their own spaces."

Co-living players note that they will have to proactively adjust to consumer needs, ensuring that co-living spaces are "WFH friendly" with adequate and comfortable working areas, for example.

Shaun Poh, executive director of capital markets Singapore at Cushman & Wakefield, said there could be stronger local demand for co-living with the rising number of singles in Singapore.

"Nonetheless, foreign demand is still expected to be the dominant tenant pool for co-living as there is still a strong local preference to buy rather than rent, given our culture, availability of BTO flats which is an affordable housing option and strong historical performance of housing prices."

As property cooling measures were recently introduced, Lim also expects demand from locals who might delay purchasing a home. "We will see a bit of demand from this category of buyers. Not huge, but we will see some demand."

Before the pandemic, 90 per cent of Figment and TAP's renters were expats, with the remaining 10 per cent being Singaporeans. However, in the past two years, the percentage of locals has shifted to 25 per cent and 30 per cent for the two companies. Hmlet saw its local renters growing from 5 per cent pre-pandemic, to 35 per cent currently.

Long run expectations

In the long run, Low expects co-living demand to continue to grow. He said: "People moving in because of WFH or construction delays are what we call short term drivers of demand. They might go away, but the overall trend, in the longer term, the supply and demand for co-living as a segment of the rental market should continue to increase."

His optimism is inspired by the trajectory of co-working spaces, which has been growing as a percentage of overall office space.

In a December report by Cushman & Wakefield, analysts noted that co-working spaces have reached 5.5 per cent of Grade A office spaces within the Central Business District. Office demand from co-working operators is also expected to see growth in 2022, backed by their "flexibility, workplace analytics, and hospitality-style services", according to Wong Xian Yang, Cushman & Wakefield's Head of Research, Singapore.

"On the other hand co-living supply is harder to put together than co-working supply. Co-living supply can't jump as much as co-working supply can, because residential supply is more fragmented, so co-living can't grow as fast," said Low.

However, the market has reached a point of consolidation, co-living players agree, as smaller new entrants might struggle to gain economies of scale.

Alice Tan, head of consultancy at Knight Frank Singapore said: "We could see a re-balance of the expat- to-local ratio to a 60 to 40 likely outcome, as more diverse groups of co-living dwellers from local and foreign communities start to embrace the expanded benefits of co-living compared to conventional home rental or ownership."

Low also expects growth in "affordable co-living" to cater to S-Pass holders.

He said: "I think next year will be a good year for co-living."