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The co-living market is taking off in the Asia-Pacific region, including India, as more people migrate to cities for jobs or education opportunities. This is opening up new opportunities for real estate developers and investors around the region, says JLL’s ‘Co-living in Costly Cities – Asia Pacific’ report.
With property prices rising in gateway cities, co-living offers residents shorter and more flexible lease terms, compared to condominiums, as well as ready-to-move-in convenience, the report added. According to a case study in the report, operators could save up to 25% in expenses, over the traditional renting model. At the same time investors also stand to benefit from significant savings. By working with co-living operators that play a multi-functional role – the building manager who handles maintenance, property manager who collects rent and letting agent who sources for tenants – it eliminates the need to pay the three different layers of fees in a traditional residential property.
The four Cs of co-living
Convenience: Long lease contracts with prohibitive lease break clauses aren’t geared towards the uptick of global mobility and international assignments. Co-living on the other hand, offers flexible and shorter lease terms and often monthly lease options, making it highly attractive in today’s more transient world. It is a simple solution that provides a ready-to-move-in product that’s hassle-free for residents. The spaces are fully furnished, utilities are set-up and cleaning and maintenance services taken care of.
Cost: Dwelling prices have increased considerably faster than both rental prices and wages, leaving home ownership out of reach for many. Co-living operators are using the space better and reducing underutilsation.
While a co-living space may cost more than a room in a shared apartment at first glance, once all the additional costs like move-in and move-out, agent fees, utilities, maintenance and furniture depreciation are factored in, the pricing is relatively similar.
Community: The biggest differentiator for co-living, compared to traditional shared residences, is the emphasis on community. Loneliness and social isolation are one of the fastest growing health concerns in much of the developed world and co-living operators are cultivating communities that fight that through organised social activities, events, workshops and classes. They also tend to match residents with other like-minded people, through personality profiling.
Collaboration: Some co-living models cater entirely towards a certain profile or profession, with co-living operations that specifically house ‘digital nomads’, Blockchain communities or tech start-ups, etc.
Student housing drives co-living spaces market in India
Across the region, India is leading the way for co-living. The undersupply of student accommodation, coupled with the market size, are a huge draw for developers and start-ups. There are over 35 million tertiary students in India, with no significant purpose-built student accommodation (PBSA) operators in the market. Over 10 million of these students relocate to another city within India. As a result, some of the larger co-living operators like Stanza and Placio are targeting this student demographic and filling the void left by the lack of PBSA.
This growing tertiary enrolment ratio and large number of students also means there is a large and rapidly growing base of young professional graduates. These young, well-educated professionals, particularly those from inter-state are one of the key demographics being targeted by co-living operators.
Most cities in India tend to have a fragmented traditional residential rental market, however there are various options at all ends of the budget scale. The co-living model is often focussed around convenience and community, rather than focussing on lower costs.
The process of moving inter-state and renting in the traditional sense has logistical hurdles in India. Those not yet married, or students without a stable income have traditionally been seen as a less attractive tenant option making the co-living product offering a readymade solution with a built in community is highly attractive to mobile professionals.
Institutional investors and venture capital firms have found their way to India, with the likes of Goldman Sachs and Warburg Pincus investing in the sector.
“Co-living bridges a housing gap that traditional living categories do not support,” explains Vijay Rajagopalan, head – alternatives, JLL India. “Since co-living spaces are fully furnished with cleaning and maintenance services, tenants only need to deal with one operator, instead of paying for deposits, utilities, furniture and agent fees,” he explains.
“The co-living business model varies significantly due to lease structures and ownership models. Many co-living operators are asset light, so they work from a profit-sharing lease or management agreement, while others prefer fixed market-based leases where they can guarantee landlords a fixed income over a longer period. Due to the ability to scale operations, co-living operators can potentially provide higher incomes to property owners and deliver efficiencies around cleaning, furniture and utilities,” he adds.
Co-living spaces: Market potential in Asia-Pacific
Although the co-living sector is still in its early stages of development in most parts of Asia-Pacific including India, JLL predicts that it will evolve to appeal to a larger and broader tenant base, over time. Touted as two of Asia’s costliest cities to live in, Singapore and Hong Kong have a small number of established operators seeking rapid expansion, despite the lack of space. Singapore has seen its fair share of co-living investments, including Hmlet’s funding from Aurum Investments and Sequoia India and Singapore Management University’s partnership with The Ascott Limited to manage lyf@SMU. Meanwhile, Hong Kong’s underperforming hotels and serviced apartments, are converting to co-living spaces as building owners seek to improve rental yields.
Elsewhere, the rapid evolution of China’s multi-family rental market, has made it one of the most developed co-living markets in the world. Several developers have actively bid on land sites earmarked for rental property and set up their own branded co-living operators. By contrast, Australia has been lagging behind, due to the undersupply of multi-family en-bloc products and tax policies on residential rental businesses. However, residential market prices are softening, prompting more developers to shift towards the burgeoning built-to-suit sector.
“Over time, we are likely to see co-living take a higher market share in Asia-Pacific, as tenants continue to drive demand and investors chase higher yields. Higher consolidation activity is also on the cards, as smaller players will get absorbed by bigger players with more built-to-suit products available in the market,” concludes Nick Wilson, head of capital markets research, JLL Asia-Pacific.