_A global shift towards the ‘built-to-rent’ model in real estate is taking shape in Asia-Pacific.

A recent Knight-Frank report, Breaking Shackles, The Rise of BTR, found that the living sectors are reshaping how people live and invest, with the next decade being a game-changer.

In the current challenging macroeconomic landscape, the ‘built-to-rent’ (BTR) model stands out as a high-performing strategy with its ability to generate stable, inflation-linked income over prolonged periods.

What is the living sector and the BTR and how does it address pressing housing issues?

Over the last decade, the residential real estate sector has seen significant global growth. While the US and UK have achieved well-established and mature market status, Asia-Pacific promises substantial growth potential.

In the "living sectors," developers build and own rented properties, ensuring a stable, long-term income for both the developer and the investor. This approach evolves the real estate landscape and fosters a vibrant tenant community, offering excellent service and amenities.

It encompasses a diverse range, including student accommodations designed exclusively for students, co-living spaces tailored for young professionals, self-contained bedrooms with shared kitchens, and the emerging BTR or multi-family housing featuring self-contained apartments with lease terms typically one to two years. Notably, these living spaces prioritise community and amenity offerings. These living spaces tend to be in prime, centrally located areas, making them highly attractive. Lease terms vary, ranging from as short as three months to as long as two years.

The final subset of the living sectors is senior housing, often incorporated into retirement villages for elderly residents. This model has witnessed substantial growth, especially in Western markets and in Asia-Pacific, driven by the global rise in house prices and the ensuing affordability crisis. This has been particularly pronounced in Australia, where increasing house prices and a high-interest rate environment have made homeownership significantly unattainable for the younger generation. Consequently, governments have been prompted to rethink regulations, aiming to support and facilitate the growth of the rental sector as a potential solution for the housing challenges the younger generation faces. This shift is primarily motivated by government efforts to adapt to the changing housing landscape and offer new solutions to housing affordability issues.

What are the fundamental differences between the co-living and BTR model?

Co-living and BTR share a common spectrum in the living sectors, with subtle differences. Co-living is all about flexible living arrangements. These spaces often attract a significant amount of foreign demand, including foreign workers on temporary assignments or individuals in transitional housing situations. Co-living spaces typically offer single or studio bedrooms with shared kitchens and living facilities. Lease terms are relatively shorter, spanning from three to six months to one year, and they tend to be more affordable than BTR options.

In Singapore, we have witnessed the growth of the co-living market to meet the needs of individuals who are predominantly aged from 25 to 35 years. The market's growth is attributed to various factors, including delays in residential construction due to the COVID-19 pandemic. As construction projects faced delays, people sought interim rental solutions, which co-living provides. Additionally, there is a noticeable cultural shift among younger generations in their living preferences. Household formation occurs later in life, with people now prioritising their careers before settling down. Co-living meets the needs of these young professionals who seek centrally located, convenient living spaces with amenities like inclusive Wi-Fi and utilities, fully furnished accommodations, and a simplified, flexible living experience. This lifestyle choice aligns with the evolving priorities of career-focused individuals.

Where do you see the growth trajectory for co-living? Will we see this momentum continuing?

In Asia-Pacific, the growth of co-living is driven by several factors. One of the primary considerations is the need for a significant cultural shift. Unlike the US, where multifamily rental living is well-established and widely chosen, Asia has a distinct cultural emphasis on homeownership. This cultural difference is often reinforced by government policies encouraging homeownership. Effective changes in government regulations are needed for a more dynamic rental market to exist. For example, this could involve strategic urban planning that allocates space specifically for rental accommodation, including co-living options, which are currently underrepresented in the market.

The region is experiencing certain compelling factors that are likely to drive the growth of the rental living sector. Escalating property prices is a significant concern, with Singapore witnessing 42 percent increase over the past two years. Additionally, traditional rental markets have seen 40 percent increase in rent prices during the same period. These factors, combined with housing shortages and a continuous influx of people into Singapore, contribute to the need for alternative housing solutions.

However, some constraints and challenges might hinder the expansion of the rental living market. Government support is essential to foster this growth, and there must be a focus on scalability. For operators entering the market, such as Ascot, a prominent co-living brand, achieving economies of scale is crucial for efficiency. The market needs to enable operators and investors to scale their operations effectively for long-term success and consolidation.

While there are challenges to overcome, clear factors drive rental living growth in Asia-Pacific. To gain insights into how this market might evolve, we can look at more mature markets such as the UK, which has experienced a substantial transformation in the rental accommodation sector over the past decade. By studying the success of such markets, we can better understand the potential for Asia-Pacific to undergo a similar transformation in rental living.

What are some successful case studies or examples of BTR projects that have transformed rental living?

Australia provides a compelling example. We are on the brink of witnessing the completion of the first BTR developments in the country, with a few operational assets already emerging. Melbourne, in particular, has been a focal point for BTR development, with numerous assets strategically located in the heart of Melbourne's Central Business District.

What sets BTR apart is its potential to rejuvenate and enhance neighbourhoods. It offers quality housing and integrates community amenities, effectively creating a vibrant lifestyle for its tenants. The essence of BTR lies in enabling people to reside in central locations within high-quality, well-equipped buildings, all without the burden of purchasing properties at unattainable prices. This model fosters the development of thriving communities within these central areas.

You can find out more on co-living in Singapore here

Listen to the full interview here