• Sky-high rents and prices, together with social trends boost co-living space development
• Co-living’s convenience, community and connectivity gains popularity among millennials
• Co-living provides a higher yield than traditional leases
Hong Kong - 13 Jun 2019 Prominent real estate advisor Savills pointed out in its Hong Kong Asian Cities Report 1H 2019 that co-living is bridging the gap in the urban millennial segment and offering an opportunity to investors, developers and property owners to create not only property value, but also social impact in the community. We foresee that these buildings will remain a popular alternative asset type.
Being among the least affordable housing markets with a house price-to-income ratio of 20.9, Hong Kong saw luxury rents rise from HK$50 psf pm saleable in Q1/2009 to HK$67 psf in Q1/2019; while average luxury prices skyrocketed from HK$12,700 psf saleable in Q1/2009 to HK$35,000 psf in Q1/2019. In addition, the average waiting time for public housing has risen to 5.5 years. It is therefore no surprise that young millennials are now searching for cheaper alternatives in the private rental market.
From a tenant perspective, co-living provides three elements - convenience, community and connectivity. Rents of fully furnished rooms near MTR stations usually range from HK$3,500 to HK$20,500 per month. Besides the basic cleaning service, activities such as game nights or community volunteering organised by the landlord are provided, thus tenants are able to live among their peers, exchange ideas and share experience.
From a landlord perspective, co-living provides a higher yield than traditional leases. Investors are also able to extract extra value from old tenement buildings with a low utilisation rate. The most common strategy is to transform residential buildings and service apartments into co-living properties as minimal alterations are required. Local companies such as Synergy Biz and Eton Properties have been operating co-living spaces since 2017; the size and rents vary greatly (Woodland Villas: 1,600 sq ft, HK$98,000 / month; Mini Ocean Park Station: 80 - 200 sq ft, rent starting from HK$7,600 / month).
Some investors have looked at budget hotels or guest houses in non-core areas (e.g. Ovolo Hotels - Mojo Nomad; Weave Co-living - a 13-storey hotel in Prince Edward and a second property in Hung Hom). Currently, there are only six hotel operators offering co-living services in Hong Kong.
Though it is more difficult to convert industrial buildings into co-living space because of various technical requirements, the government is encouraging developers to renovate old industrial buildings and provide transitional housing.
Mr. Simon Smith, Senior Director, Research & Consultancy commented: “Ranked as the top global consumer trend for 2018 by Euromonitor, the concept of co-living is a form of short-term housing where residents share living space and also a set of values. It offers a solution for young urban professionals, millennials and expats who are looking for an enriching lifestyle and to become part of a close-knit community.”
Mr. Jonathan Chau, Deputy Managing Director, Investment & Head, Investment Private Office, HK / Asia, commented: “It is worth investors keeping an eye on co-living properties, but investors should be aware of the licensing requirements, while tenants need to consider whether they want to be part of a community. Overall, we think co-living will grow in popularity as an alternative asset class among investors chasing yield while looking for the benefits of greater diversification.”