Will There Still be Appetite for Co-Living Post Covid-19?


While Australia's property sectors have been hit to varying degrees by Covid-19, the fledgling co-living sector has continued to gather pace.

The co-living concept offers market rental apartments in a shared communal space, capturing the millennial market looking for “experiences over assets”.

It has also provided tailored short-term solutions to travellers and new migrants who were without deep roots in a new location.

Demand has also been driven by younger locals struggling with the high cost of housing close to jobs, with co-living offerings providing flexible, community-based options through all inclusive memberships.

The emerging asset class, often highlighted for its potential to resolve a number of modern housing and social challenges, over recent years has been met with similar challenges facing the build-to-rent sector.

Foreign institutional investors looking to establish assets within the class remain exposed to the potential pitfalls of land tax, withheld tax rates and the GST treatment found in build-to-rent products.

▲ Co-living provides affordable homes for younger people cut out of the market, while pooling resources, fostering community and catering for an increasingly mobile generation.
▲ Co-living provides affordable homes for younger people cut out of the market, while pooling resources, fostering community and catering for an increasingly mobile generation.

Investors have also been wary of the nascent asset class following the publicised failure of the co-working sector following WeWork's ill-fated IPO.

The co-living sector has now faced a new challenge as the global pandemic ravages markets globally, with many expecting its high-density living format to prove vulnerable.

Opendoor Asia Pacific president Graham Zink, who will be joining The Urban Developer co-living and build-to-rent vSummit next Thursday said the co-living sector had remained resilient in the face of the pandemic.

“The counter intuition is that you have a densified product that inherently would place more risk on people contracting and transmitting coronavirus,” Zink said.

“Instead, what we have found since March in the US is that the ability to quarantine in groups has provided significant emotional and social support to our tenants.

“As well as this, the protocols, procedures and governance we have provided through our platform has kept people connected, informed and installed them with a greater sense of community.”

Zink said that Opendoor, which holds 12 co-living assets on the western coast of the US, had been engaged by a number global institutional investors wanting to understand how the sector had held up during the pandemic.

“Co-living post-Covid will continue to be used as a defensive counter-cyclical asset class,” Zink said.

“[And] operators who have addressed the pandemic in a responsible and professional way, by mitigating the risks associated with densified housing, will come out of this paradigm in a favourable light.”

Related: Co-Living: Branded Dormitories or a Viable Asset Class?

▲The communal garden space at Hmlet's St Peters building Sydney.
▲ The communal garden space at Hmlet's St Peters building Sydney.

Fellow vSummit panelist and Hmlet Australia director Chrystan Paul told The Urban Developer the pandemic had created new opportunities for the co-living sector following the collapse across the hotel and tourism sectors.

“The downturn of the residential sector in 2018 opened the door for co-living to move from a nascent concept and firmed itself as a viable asset class,” Paul said.

“The pandemic has now opened a second door with developers, investors and landlords, who were previously exposed to residential, turning to co-living as an alternative ‘highest and best-use’. ”

Singapore's largest co-living operator Hmlet, which made its debut in Australia late last year after acquiring local co-living operator Caper Co-Living, currently manages 100 locations globally and holds an occupancy rate of 90 per cent.

“In the last 18 months we have proven that Australia can sustain co-living as an asset class,” Paul said.

“One of the biggest advantages is that we don’t have to wait and are able to deliver projects immediately with other providers branding, marketing and padding out their development pipelines for projects still multiple years down the track.

“Our scheme in St Peters, which is the biggest in co-living facility in Australia, was signed in September of 2019, opened in early November and was fully sold out by February.”

Looking ahead, Paul said the pandemic had allowed the business to readdress its focus, taking advantages of gaps left by businesses hit hardest by Covid, such as Airbnb and its imitators.

“Those mum-and-dad Airbnb and short-term rental operators are now in a tough spot and are struggling to return to traditional real estate agents and fees,” Paul said .

“We are now looking at a new solution to allow those who are struggling in the short-term rental market to onboard their properties to our platform. ”

Register for The Urban Developer’s co-living and build-to-rent vSummit.

Thursday, 23 July 2020

The Urban Developer Co-living and Build-to-Rent vSummit

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