Hotels are increasingly being turned into co-living spaces in markets where institutional investors are hunting for cheaper alternatives to residential conversions and high rental growth potential, according to JLL.
In June, a $200-million joint venture between asset manager PGIM Real Estate and co-living operator Weave acquired the Rosedale Hotel in Kowloon, Hong Kong, with the intention of converting the 435-key property into a co-living property.
Meanwhile, in Singapore, real estate management firm LHN Group has invested $65.5 million in the past three years to acquire properties under its co-living brand Coliwoo—with its latest two Amber Road properties also converted into new co-living offerings.
Behind the deals are favorable tax rates in the two cities. Lower taxes on the purchase of hospitality assets compared to residential assets—which are subject to higher transaction taxes that decrease investment returns—have made hotels the preferred option for asset conversion, particularly in Singapore and Hong Kong.
Both markets have seen a slew of conversions of hotels into co-living properties, where private rooms are offered with shared common areas.
Unlike most of Asia-Pacific, where these modern communal living properties are widely considered multifamily assets, Singapore and Hong Kong stand out as exceptions. This has lent momentum to the co-living trend that first found its footing in Europe and the U.S.
The rising popularity of co-living is down to the convergence of two factors, according to Noel Neo, head of Singapore mid-markets, JLL Hotels & Hospitality Group.
“One reason is the stark rise in residential rents across the region over the past few years,” he said. “In the case of Hong Kong, another factor is the income loss of underperforming hotels which were first hard hit by social unrest and subsequently the pandemic.”
The rise of co-living
Work-from-home policies, which became a norm during the pandemic, also contributed to the emergence of new co-living properties.
“The demand for larger, individual living space surged because it was no longer feasible for multiple people to have conference calls within the same space,” said Neo.
For Singapore and Hong Kong, these ideal conditions for co-living convinced investors to actively seek opportunities in the sector popular among young professionals, expatriates and students.
Many co-living operators adopted an aggressive growth strategy to purchase and convert hospitality assets into co-living properties to meet this demand, especially during the pandemic.
“Some operators have been able to secure acquisition opportunities in Hong Kong, partly due to suppressed valuation in the hotel segment,” says Nelson Wong, executive director, research, JLL Hong Kong.
Buyers in Hong Kong were able to purchase hotels at a 20%-40% discount to the pre-COVID price, according to data from the latest JLL Capital Tracker.
“Hotel owners, reeling from the impact of the pandemic, were also more open to selling properties that they closely held previously,” Neo said.
In Singapore, the co-living trend has also shown no signs of abating. “Hotel prices have remained largely unchanged since the pandemic,” said Neo. “Even with the tourism recovery, a drop-off in demand for co-living conversions on a purchase-to-convert basis appears unlikely.”
