Shared Living Seems Like It Sucks. So Why Is It Taking Off in Asia?
WHY YOU SHOULD CARE
Despite the obvious downsides, formalized co-living arrangements are catching fire with certain renters.
By Ben Halder
From the Beijing streets teeming with communal bicycles to the co-working spaces that sprung up across Hong Kong virtually overnight, Asian cities have a track record of embracing every corner of the shared economy. With some of the world’s most under-supplied housing markets, cities such as Shanghai and Seoul are driving the latest evolution in the shared space: co-living. And while it tackles some of the issues plaguing these markets, it is exaggerating others.
The concept, where tenants usually sign short-term agreements for furnished, private rooms with shared kitchens and living facilities, offers flexibility and access to quality housing where it is in short supply. In many ways, co-living mirrors the age-old concept of having roommates, but it vastly differs in scale, with co-living residences typically encompassing entire multi-story complexes numbering hundreds of units. But this new iteration is limited in terms of the type of renters who benefit — largely young professionals who value flexibility — and puts new pressures on already saturated markets. Still …
People in the Asia-Pacific region are nearly twice as likely as those in Europe and North America to say they’d consider co-living.
That’s according to Co-Living in Costly Cities — Asia Pacific, a 2019 report by real estate services firm Jones Lang LaSalle (JLL). It found that both owners and renters in Asia show more willingness to turn to co-living than any other region in the world. Eighty-one percent of consumers surveyed in the Asia-Pacific region said they would be willing to live under such arrangements, compared to 44 percent in both Europe and North America. The closest market to Asia was Latin America, where 72 percent said they would be willing to live in shared accommodation.
For property owners, the prospects are very attractive. With formal co-living arrangements, landlords contract with a single operator who acts as both property manager and letting agent — a combination of duties that according to JLL’s report can knock an estimated 25 percent off the landlord’s expenses as large co-living operators buy wholesale furniture and are able to save money by scaling expenses like cleaning. The JLL report found that 79 percent of real estate owners in the Asia-Pacific region would be willing to rent out space as co-living units, as opposed to 53 percent in Europe and 51 percent in North America.
Part of the reason that the concept has gained traction quicker in Asia than other regions is that it provides an alternative approach in markets where flexible, short-term tenancies are incredibly hard to come by. Asia has an abundance of these, and Hong Kong is at the top of the list. A traditional tenancy agreement in the city is two years, with tenants able to break the contract only after 14 months. “Hong Kong is a fast-paced market where jobs can come and go,” says Nicholas Wilson, head of capital markets research for Asia Pacific at JLL. “Co-living lends itself to this kind of market by offering flexibility in their lease terms and creating a home away from home through furnished, neat, compact living spaces.”
Sachin Doshi, CEO of Weave Co-Living, mirrors these sentiments. “Hong Kong attracts young professionals and students from all around the world and for many of them, the plug-and-play convenience of co-living is very appealing,” Doshi says. Weave aims to offer 10,000 units by 2023.
In the first four months of operation, Arch Capital had already leased 80 percent of its available co-living units in Hong Kong.
Hong Kong is just one of Asia’s housing markets cashing in on the emerging co-living trend, with price-to-rent ratios, rent as a percentage of salaries and waiting time for social housing skyrocketing across the continent.
Indexed dwelling purchase-to-rent ratios in Hong Kong are up 58 percent in the last 11 years. Over the same period, rental versus purchasing costs are up 81 percent in Singapore and 68 percent in Shanghai. In Mainland China, 235 million people are expected to move into cities over the next 15 years, a nearly 30 percent increase on China’s 810 million urban dwellers today.
Comparable figures in the U.S. are a long way behind in terms of current units and short-term projections. According to a May 2019 report by commercial real estate firm Cushman & Wakefield, the biggest co-living companies in North America currently offer 3,300 co-living beds. The report predicts this number is set to increase to 10,000 over the next few years. By comparison: One of the main players in China is Shanghai-based Harbour Apartments, which raised $1.58 billion of investment in 2017. It aims to offer 80,000 co-living units across Asia by the end of 2019 and a million units within five years.
Co-living may provide greater flexibility, but it comes at a cost for consumers. According to JLL’s report, the price for the tenant tends to be higher than in conventional rental agreements, with co-living units attracting a 5 percent premium. And it is doing nothing to resolve the gulf in cost between owning and renting an apartment. Hong Kong residents already spend 80 percent of their wages on rent, compared to 45 percent in 2006.
Co-living may only account for a fraction of the overall market in Asia, but it threatens to exaggerate other difficulties in these markets — primarily the shortage of quality housing. With more landlords moving toward the shared concept, it increases the pressure on families and other renters for whom co-living is not a viable option. The rise in popularity of co-living further narrows this market, which is struggling from a lack of affordable units. Issues around entry to market are also emerging. “Landlords and vendors are already pricing in the potential rental uplift generated from co-living, making it difficult for investors and operators to enter the market,” says JLL’s Wilson.
Despite the obvious positives for landlords and renters looking for easy access to flexible accommodation, the jury is still out on the overall benefits to the housing markets where co-living is gaining popularity. Whatever the consequences, it appears as though they’ll play out in Asia before anywhere else.
- Ben Halder, OZY Author Contact Ben Halder