3 reasons why the time is ripe to invest in co-living

The co-living sector in Singapore has largely flown under the radar — until the pandemic unleashed an unprecedented wave of demand.

Originally targeted at short- to mid-term foreign residents such as expatriates and international students, the sector has also drawn attention from long-stay residents including local students, young professionals, and new families.

At the end of 2018, Singapore’s co-living space supply stood at approximately 3,700 units. Today, however, close to 3,000 new keys are expected to come on stream this year, adding to some 9,000 rooms already in the Singapore market, according to data from our latest co-living report.

The potential for co-living here to replicate the success of established markets like Japan and the United States is promising. Here are the reasons why I’m optimistic about the budding sector:

Layoffs, rising interest rates, and soaring housing prices have undoubtedly impacted the ability of Singapore’s younger generations to purchase their first homes, forcing many to consider rental options that may be costly.

Amid the surge of demand, tenants have seen rents climb 42.5% in the past two years. They find themselves competing not only with locals facing delays to their residential projects, but also with mid- to long-stay foreigners returning to Singapore following the easing of border restrictions last year.

Co-living has emerged as a favourable rental alternative due to its affordability and ability to cater to changing lifestyles, from the shift towards remote/hybrid work to the trend of delayed household formation.

These socio-economic factors are driving a growing demand for rental properties that are affordable and flexible in terms of length of stay, which we expect will continue beyond 2023, even as return-to-office policies take effect.

Singapore’s office districts are becoming decentralised. While investor confidence in the longer-term potential of mixed-use developments in the Central Region remain strong, business hubs outside the Central Business District (CBD) are attracting major companies and the top-tier talent they seek.

Jurong Lake District, for one, is slated to become the second largest business district in Singapore. Works are underway to transform it into a mixed-use, green, and car-lite district with Grade A offices, residential apartments, a transport hub, and a new mall within the next five to 10 years.

As a result, rental demand is also spreading beyond the CBD and into regional business hubs and cultural hotspots. JLL research has shown several co-living clusters emerging within the Central Region, with more sprouting up in smaller business districts. In the next five to 10 years, more co-living operators will likely set up shop in these decentralised business districts to tap into growing demand.

Investors may see the lack of greenfield build-to-rent opportunities in land-constrained Singapore a key challenge to build a steady pipeline of co-living supply. To counter this limitation, co-living operators and investors have been repurposing existing commercial or hotel stock for residential use — a trend which is expected to drive commercial transaction activities in Singapore in the medium term.

For instance, Coliwoo, the co-living unit of Singaporean real estate company LHN Group, recently acquired GSM Building to convert it into a mixed-use development with serviced apartments and commercial units. Another Singaporean co-living operator Figment also specialises in similar conversions by restoring heritage shophouses that it leases and converting them for residential use.

Figure 1: Location of co-living rooms islandwide *
* The above heatmap is a representation of about 7,000 rooms from 15 operators (out of more than 9,000 rooms from about 20 operators) where exact locations are identified
Source: MapIT, JLL Research

Early entrants to the market less than a decade ago have largely become defunct within a year of operation. JLL research reveals some 20 active co-living players today, with the top three companies (by market share) accounting for almost 50% of the total co-living supply in Singapore.

To stay ahead, many are turning to consolidation as a strategy to expand their market share, outgrow the competition, and reach new customers.

For instance, Hong Kong-based co-living operator Dash Living’s acquisition of Easycity in 2020 secured its foray into the Singapore market and better positioned itself for an Asia Pacific-wide expansion. Last month, the brand announced its fourth en bloc in Singapore, following another launch in Hong Kong earlier this year.

Through mergers and acquisitions (M&As), co-living developers and operators can reap the benefits of economies of scale, from improved efficiency to reduced operating costs. Consolidation places these co-living players in much better stead to broaden their reach and evolve their offerings to meet the needs of existing and new customer segments.

Investors stand to gain from growing economies of scale in a competitive market like Singapore, where more M&As in the co-living scene are expected.

With favourable market conditions, and with supply keeping up with emerging demand from a wider occupier pool, co-living is ripe for investment for opportunistic commercial real estate investors.

Download our 2023 co-living whitepaper “Co-living in Singapore: Here to stay” for in-depth insights into investment opportunities in Singapore’s co-living market.