Warburg Pincus-Backed Weave Opens Second Property as Co-Living Catches On in Hong Kong

Warburg Pincus-backed Weave will throw open the doors to its second co-living space in Hong Kong next month as the two-year-old company races to keep ahead of a growing host of rivals aiming to provide millennial-friendly rental housing in the Asian financial hub.

Weave’s new location, a 95-room property in Kowloon’s hip Hung Hom area, is opening just 16 months after the company opened its first shared living facility in Kowloon, as rival offerings including District 15’s The Nate, Campfire’s Live and Arch Capital Management’s Oootopia have all opened new locations around the city during less than one year.

“We see huge untapped demand for co-living in Hong Kong due to the limited supply of well-designed, good quality studio accommodation combined with unaffordable rents,” Weave founder Sachin Doshi told Mingtiandi.

Providing Flexible Housing for Young Professionals

Doshi and his competitors’ ability to offer new housing options for Hong Kong’s cadre of time-starved finance workers and entrepreneurs is driven in part by the city’s world-leading housing costs.

With a 650 square foot (60 square metre) home in Hong Kong costing the equivalent of 21 years’ annual salary, operators like Weave have seen millennials and young professionals gravitating towards co-living as condominiums purchase are out of reach and affordable rental apartments become hard to find.

Located at 61 Winslow Street, Weave had acquired the asset now known as Weave on Baker in March and has since been busy renovating the property, including fitting out 2,100 square feet of communal space spread across two floors.

Individual rooms, which measure up to 130 square feet, cost under HK$12,000 per month, and provide residents free use of the facility’s communal living room, kitchen, and gym.

Doshi, who formerly served as head of private real estate investments in Asia Pacific for Dutch pension fund manager APG, said that rapidly rising rents in Hong Kong have forced many young people to resort to substandard accommodation, making a strong case for a “good quality, value-for-money” alternative. In June of this year, sources who spoke with Mingtiandi indicated that Weave had acquired a third property in Hong Kong island’s Sheung Wan area, with Weave representatives now confirming that the new facility will open in the area just west of Central in late 2020.

Deriving Value From a Plug-and-Play Community

With Hong Kong serving as a magnet for professionals talent from around the region, co-living operators such as Weave are also benefiting from their ability to bring people together in professionally managed properties.

“As a large metropolis that attracts diverse talents from around the world, the benefits of a plug-and-play community that allows residents to connect with an instant social-life makes Hong Kong a perfect city for co-living to thrive,” Doshi said.

The Hong Kong-based operator bills itself as a “collaborative living company” that fosters close-knit residential communities. During October residents at Weave’s initial Hong Kong location have the opportunity to join a smart phone photography workshop and an Oktoberfest outing to the horse racing track in Happy Valley as part of a social program designed to bring the project’s young urbanites together.

Events and community are a mainstay of the co-living sector’s appeal, with most operators often offering activities for the socially inclined as way to add value and move beyond just offering budget accommodation.

“Over the last two years, the sector has transformed from affordable housing to a lifestyle choice,” Denis Ma, head of research for JLL Hong Kong told Mingtiandi.

With some rooms priced at the equivalent of renting a small apartment, the popularity of co-living derives as much from the attraction of a ready-made community and leasing flexibility, as it does from price considerations, according to Ma.

Where most landlords lock a tenant in for one year, residents in co-living accommodation can rent on a monthly basis, taking away the worry of losing a rental deposit for residents who could be transferred to another city on short notice. And this combination of flexibility and community building is helping to draw a crowd, according to JLL.

“In terms of whether co-living is a success in Hong Kong, the properties in the city we’ve seen have an occupancy of 80 to 100 percent, which presents an argument that is hard to argue against,” Ma said.

Investors Try Out Fresh Co-Living Approaches

The high level of occupancy at existing co-living projects in Hong Kong has helped pull more players in the sector.

In May of this year Hong Kong-based fund manager Arch Capital opened its second Oootopia co-living space in Kowloon’s Tai Kok Tsui area through a joint venture with Singapore-based Wanderwonder Hospitality.

“Co-living will be the driving force of Hong Kong’s future property market amid demand for affordable housing in the world’s most expensive city for real estate,” Arch Capital CEO Richard Yue said as his company opened its second location less than one year after opening the doors to its debut co-living venture in To Kwa Wan on the western shore of Kowloon Bay.

Among the competitors for Arch’s Oootopia and Doshi’s Weave is The Nate, a co-living facility on Kowloon’s Nathan Rod which District 15 opened in November last year through a joint venture with real estate fund manager Pamfleet. The local asset manager’s take on co-living aims at the higher-end of the shared accommodation spectrum with rooms starting at HK$15,000 per month.

Alexander Bent, managing partner and co-founder of District 15, which operates the Nate, told Mingtiandi that his company’s relationship with co-living came about by accident, following an investment in a serviced apartment project that the firm then sold on to local hospitality investment and management firm Ovolo in 2010.

With the concept of co-living not yet fully developed in Hong Kong at that point, Bent decided to target affordable accommodation in his next venture, including offering communal kitchens rather than the ensuite cooking facilities that had often gone unused in his firm’s previous properties.

At The Nate’s Tsim Sha Tsui facility, residents are offered a similar calendar of events as at Weave, but the communal side of living is downplayed. “We really believe in personal privacy and space at The Nate,” Bent said. “The Nate is really about focusing on the self.”

Co-living has also attracted investment from Hong Kong’s largest locally grown co-working operator, with Campfire having opened its 18,000 square foot Camp Sham Shui Po residential facility in Kowloon during 2018.

Co-Living Operators Strive to Build HK Portfolios

In contrast to co-living operators such as Hmlet, which lease properties from landlords before offering rentals to tenants, District 15 – which invested with Pamfleet on its Tsim Sha Tsui property – has chosen an asset-heavy strategy.

“Being real estate investors, we’re focused on real estate value, looking at ways we can build out and build on the value,” Bent said. “When you own the assets, you have a longer runway, making it much easier to execute the vision and provide a high quality finish.”

Despite the uncertainty arising from the on-going unrest in Hong Kong, co-living accommodation is still showing strong occupancy, according to Bent.

Weave, which has a pipeline of 1,000 rooms in Hong Kong, also intends to continue to invest in the Asian financial hub where Doshi sees strong demand and the potential for attractive returns.

“It is the best market for profit in the region,” said Alvin Leung, director of JLL’s Hong Kong Capital Markets. “There is a lot of investor interest in co-living, especially for funds, attracted by the high profit margins and stable cash flow.”

According to Leung, the difficulty posed for investors and operators is the lack of available assets in the city, where suitable properties to purchase or operate rare.

“Most residential buildings are already stratified, or strata-leased, which holds back Hong Kong operators’ expansion plans,” he said.

With the on-going social unrest pulling down hotel rates to a similar level as co-living accommodation, Ma said that co-living operators may find themselves challenged by hotels and guest houses.

“It is essential for co-living operators to differentiate themselves to stay ahead of the curve,” Ma said.