Industry Perspective Potential impact of sharing economy on Singapore's hospitality industry - UOB Group
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Real Estate & Hospitality
Industry Perspective
Potential impact of
sharing economy on
Singapore’s hospitality
industry
Industry Perspective
Real Estate & Hospitality 2
(This page is left blank intentionally)
Industry Perspective
Real Estate & Hospitality 3
Executive summary
After a prolonged weakness induced by excessive supply, prospects for
Singapore’s (“SG”) hospitality sector have brightened amid booming tourism in
ASEAN. Nonetheless, structural trends that could be headwinds for the
hospitality industry are emerging.
The rise in the sharing economy in Asia amidst an evolving economic and
Real Estate &
Hospitality demographic profile has led to new lodging formats and more differentiated
offerings e.g. Airbnb and co-living, which could structurally disrupt traditional
hotels (particularly the budget segment) and serviced apartments.
New lodging
formats and Near term impact on Singapore hotels is however expected to be limited
differentiated given the crackdown on illegal lettings (< 3 months for private housing) and
the government’s recent decision in May 2019 that short-term rental stays
offerings from
offered by platforms e.g. Airbnb, will remain illegal in Singapore. Meanwhile,
sharing activity in the nascent co-living segment has surged over the past 24 months.
economy could
disrupt In this report, we take a look at these trends and consider their potential
hospitality impact on the traditional hospitality industry.
industry. For more information on the above insights and banking solutions,
please email industry-insights@UOBgroup.com.
December 2019
Industry Perspective
Real Estate & Hospitality 4
Content
03 Executive summary
05 Structural trends
Sector:
Real Estate &
Hospitality
Potential impact of short-
Potential
impact of
07 term rental stays on
Singapore’s hospitality
industry
sharing
economy on
Singapore’s
hospitality
industry
09 Co-living
16 Summary overview
17 Appendix
Industry Perspective
Real Estate & Hospitality 5
Structural trends
Impact of sharing economy on Singapore’s hospitality
industry is not significant yet…
The sharing economy in the hospitality industry has manifested itself
in the form of short-term rental (“STR”) housing and the ubiquitous
influence of home rental companies, like Airbnb or co-living operators,
has been well acknowledged.
The prevalence of various technology-based applications has enlarged the
space and accessibility to options for those participating in the sharing
economy. Essentially, the disruption in rental housing is driven by the dual
opportunities to optimise unutilised home assets and a growing consumer
need for diversified leased accommodation options.
Short-term rental stays and Singapore’s position
No other brand name is as synonymous with STR stays as Airbnb, which is
an online marketplace for arranging or offering lodging, primarily homestays,
or tourism experiences. The company does not own any of the real estate Disruption in
listings, nor does it host events. Essentially, it acts as an intermediary rental housing
between the parties and received commissions from each booking. Based driven by dual
in San Francisco, California, United States, Airbnb entered the Southeast opportunities to
Asian market in 2012 with the launch of an office in Singapore.
optimise
However, Airbnb’s impact on Singapore’s hospitality industry has not unutilised home
been as significant or pronounced compared to its impact in the assets and a
Western geographies especially in the United States. For a start, short- growing
term leased accommodation is still a relatively new phenomenon in
consumer need
Singapore. It is also growing from a comparatively smaller base. More
importantly, growth was recently clipped by Singapore’s strict housing
for diversified
regulations where on 8 May 2019, the Urban Redevelopment Authority leased
(“URA”), announced that short-term rental stays offered by platforms e.g. accommodation
Airbnb, will remain illegal in Singapore. Due to an “impasse” on the options.
proposed rules between the position of home-sharing platform operators
and concerns raised by 1,039 private homeowners surveyed by the
authorities, URA said it will not proceed with the regulations.Industry Perspective
Real Estate & Hospitality 6
Nonetheless, URA said it is open to reviewing its position, “if and when
platform operators demonstrate that they are prepared to adhere to the
regulatory framework”. Since short-term rental housing remains a housing
accommodation option that could potentially be legalized in Singapore, it
would be instructive to consider its likely impact should it become a
mainstay in Singapore.
From a survey of private homeowners conducted from Aug to Nov 2018, URA said the majority of
the respondents felt short-term rentals would have a negative impact on other residents:
7 in 10 7 in 10
Nearly seven in 10 felt short-term About seven in 10 (69%) supported the
rentals would raise security concerns in 80% threshold for consent in a strata-titled
their estate (68%) and result in loss of development, and the 90-day annual cap
privacy (67%) for residents on short-term stays
6 in 10 56% 7%
More than six in 10 felt More than half (56%) Respondents recognised
short-term occupants felt such occupants short-term rentals could provide
could misbehave and may damage common an income supplement, but
cause noise and other facilities only 7% said they intended
disturbances to let out their homes
should short-term rentals
be allowedIndustry Perspective
Real Estate & Hospitality 7
Potential impact of short-term rental stays on
Singapore’s hospitality industry
Given that URA is open to review its position in the future, we consider the potential impact should short-
term rental stays be allowed. The general assumption is that short-term rental stays inevitably have an
impact on the traditional hospitality industry, particularly hotels. There is real concern over how their entry
may challenge existing industry players, especially those at the lower end of the market e.g. budget hotels,
due to their comparably lower cost since both compete around the same price points. As well, staying in
local residences offers tourists a more localised experience at prices that compete with the lower end
budget hotels.
Underlying this industry disruption is the emergence of new technologies and business platforms where its
adoption led to significant changes to how parties transact i.e. by providing consumers with convenient access to
the sharing economy. In the tourism sector, a major manifestation of these innovations is the rise of the home
rental market, notably led by companies like Airbnb and HomeAway. These sites allow homeowners to optimise
and monetise their home assets and offer users varied accommodation options, which also facilitated and
encouraged entrepreneurship and supplemented incomes for the asset owners and widened the universe of
choices for consumers.
Hotels Residences
According to a summary from Hotel-online on a study by the researchers at The Hong Kong Polytechnic
University (PolyU)1 in 2017, rental platforms like Airbnb have not represented a threat to Singapore’s
budget hotel operators in a significant way, although the market is under pressure from new entrants. Their
findings suggest that the threat posed by the rapidly growing STR market could intensify unless the government
introduces regulations to “level the playing field” in the near future, which is now, in our view, not a priority
concern given the latest government announcements.
1Accommodating the Sharing Revolution: A Qualitative Evaluation of the Impact of Airbnb on Singapore’s Budget Hotels by
Professor Brian King and Edward Koh, student of the Doctor of Hotel and Tourism Management programme, of the School of Hotel
and Tourism Management at PolyU.Industry Perspective
Real Estate & Hospitality 8
For clarity, public housing owners in Singapore i.e. “HDB flats”, can rent
their flats to foreigners with employment passes. The minimum stay is six
consecutive months. One- and two-room flats are not allowed to be put
up for rental. It is less strict for private condominiums, where short-term
rentals are allowed with a minimum 3-month duration. This is subject to
approval of at least 80 per cent of the development’s occupants, a vote to
be renewed every two years.
For rent For rent
For rent For rent For rent
We also surmise that short-term rental stays are less of a threat to incumbent players as the former creates
new market segments like attracting budget-conscious families. For instance, Airbnb serves a different
market segment from a typical hotel chain i.e. it merely offers a platform to facilitate transactions, with
revenues flowing directly to homeowners. As well, some hotel practices are less family-friendly in their room
offerings. For example, children beyond a certain age, say 7 or 8 years old, are considered in the hotels’
“Adult” count which forces a family of four with slightly older children e.g. 8 years and above, into taking two
smaller hotel rooms or one family-sized room at extra cost.
In short, the findings from the PolyU study and the latest government announcement should offer some
reassurance to the economy and budget hotel operators who may be concerned about the rapid rise of the
sharing economy. Despite the impressive growth, STR accommodation sites do not seem to represent a
direct threat to existing operators in Singapore in the short term. Looking ahead, should short-term stay be
allowed, a key concern is the potential lack of market regulation. Ideally, the government will have to
introduce legislation to level the playing field so that Airbnb and similar sites can operate as collaborators
rather than competitors in future and the market can expand for the benefit of all.Industry Perspective
Real Estate & Hospitality 9
Some cities have not fully embraced the likes of Airbnb and the rate of acceptance also differs. For
instance:
Hong Kong London Tokyo
Legalised home
Rentals under sharing in 2017 with
There is a short-
a ceiling cap of
28 days term rental cap of
without a license are 90 days 180 days
technically per year, although
per year
considered illegal hosts are subject to
licensing criteria
Singapore has one of the highest home ownership rates in the world. Hence, any government policy on
short-term rental stays can have huge ramifications if not properly considered. Singapore can afford to err
on the conservative side for now and adopt a wait-and-see stance while learning from the experiences of
other cities.
Co-living
In a generic sense, co-living is a form of communal living, usually in cities, that is focused on community and
convenience. Inspiring communal events are often hosted to foster a sense of community and support and offer
the comfort of being able to retreat to one’s own fully furnished private apartment. The bill usually includes rent,
concierge, superfast internet, all utilities and taxes, room cleaning, exciting daily events and for some, even gym
membership.
Co-living is a nascent concept of living globally but a relatively untapped market in Singapore. Nonetheless,
the co-living market in Singapore saw unprecedented activity in recent years with million dollar investments
being invested into operators, enabling them to embark on an expansion spree. Started in the Western
world as early as the 19th century in the form of hostels or boarding houses for students, co-living evolved
into a more sophisticated form of home-sharing for adults in the early 2010s with the growth in the sharing
economy.Industry Perspective
Real Estate & Hospitality 10
New leased accommodation options in Singapore
Co-living is popular with millennial expatriates as it offers them a private
space in a shared apartment with ample common areas for community Co-living is
activities. In essence, occupants can enjoy their exclusive private space
popular with
with the convenience of a community of like-minded people within reach.
Enabled by technology, operators can bring like-minded individuals
millennial
together. Community managers who are stationed in the cluster would also expatriates as it
organise regular social or work-related events to facilitate interactions offers a private
among members. space in a
Recent players who are looking for a share in the market include
shared
Singapore-based start-up Hmlet, Shanghai-based start-up Mamahome, apartment with
and lyf, a relatively new brand of living by The Ascott Limited that is ample common
targeted at millennials. Their growth was aided by the government's move areas for
to lower the minimum rental period for private homes from six to three
community
months in June 2017, making it more viable for co-living operators to target
members who want flexibility in their housing options. activities.Industry Perspective
Real Estate & Hospitality 11
Source: lyf Funan Singapore
As a case in point, developer CapitaLand's lodging business unit, The Ascott, opened its new 9-storey
property called lyf Funan Singapore on Sept 5, 2019, it is South-east Asia’s largest co-living property. In
its emphasis on catering to digital natives, Ascott said guests can download an app to allow smoother
payments and to book in and to gain seamless access to rooms. Instead of key cards, guests can use their
mobile phones to unlock their rooms. The building also offers communal spaces, including one for
workshops or social gatherings, a laundromat, a kitchen and a gym, where guests can mingle and socialise.
Weekly workshops will be available to residents, with social programmes ranging from TED talks to craft
workshops and hackathons.
lyf Funan 121,000
sq ft gross floor area
412 rooms
279
apartmentsIndustry Perspective
Real Estate & Hospitality 12
Pricing-wise, it was reported that it varies with the type of accommodation. The “One of a Kind” room, which is 18
sq m and can fit a maximum of two guests, is priced at S$150 per night or S$3,060 per month. Those looking for
a short stay may consider the “lyf Style room”. Also at 18 sq m, the room is equipped with a PlayStation loaded
with games and a game console. It is slightly more expensive at S$170 per night and can fit a maximum of two
guests.
Co-living operators have now added another layer of accommodation options for people looking for short to
medium-term housing. In Table 1 which compares the key formats for leased accommodation, co-living
operates on a similar business model as the hotel and serviced apartment industry especially in the
provision of cleaning services and recreational facilities. The co-living ecosystem (see next section) also
shows some characteristics similar to hotel and serviced apartments. The key difference is that co-living
operators have to lease out their space for a longer period of at least three months.
Table 1: Leased accommodation options in Singapore
Accommodation Options
Various formats for leased accommodation in Singapore
Residents get least control^ Most control
Type of Co-living Conventional
Hotels Service
accommodation space private rental
apartments
apartments
Min lease term 1 day 1 week 3 months 3 months
Mainly in Orchard
Location Mainly in Orchard Mainly within the Island wide
& the Central
& the CBD Central Region
Business District
(CBD)
Furnishing & Fully furnished, Fully furnished, Fully furnished Varies*
fittings equipped with equipped with
toiletries toiletries
Types of Daily cleaning Daily cleaning Weekly cleaning Recreational
services & services services services facilities
facilities Recreational Recreational Community events (e.g.
facilities facilities yoga, talks, networking
sessions, etc.)
^Control refers to the ability of the resident to decide what, when and how he or she wants to lay out the room and run his daily chores.
*Depends on the landlord provision; units come fully furnished, partially furnished or not furnished.
Source: JLL Research; Business TimesIndustry Perspective
Real Estate & Hospitality 13
Key actors in the co-living ecosystem
The property owners
Some operators will choose to purchase and fit-out their own co-living real
estate for more control and certainty of space. It also allows them to cap
any rising rental cost if they were to lease the space. However, this slows
their expansion plans and comes with illiquidity risks and compressed
yields due to the high capital outlay required.
The operators
Majority of the operators go with an asset-light strategy of leasing bare
residential units or an entire block from a landlord, retrofitting them and
then "sub-leasing" the individual rooms to their "co-living residents". This
model allows them to scale up quickly and also enjoy some of the
associated economies of scale e.g. advertising and promotion. The risk is For
that operators may lose control over their real estate cost and there is no Rent
guarantee of the continued availability of the business premises when
their existing lease expires. This risk will be amplified given the low
barriers to entry in this space.
Similar to a typical management contract arrangement seen in the hotel
industry, a number of operators may also take on the management
contract model where they sign long-term management agreements with
developers or landlords to help them operate their co-living facility.
The technology applications/platforms
A corollary development is the emergence of a group of start-ups that are
non-operators but are more focused on only developing applications and
platforms to match roommates to the most compatible location, operator
and/or room.Industry Perspective
Real Estate & Hospitality 14
Aspects of co-living developments in Singapore to date
In Singapore, the more common form of co-living operation is the asset-
light leased model. For example, when Hmlet first entered Singapore in
2016, it started with renting units at different condominiums from individual
landlords. To reap economies of scale, Hmlet subsequently also leased
two entire residential buildings in Joo Chiat (in East Coast owned by listed
Oxley Holdings) and Sarkies Road (located in Portofino off Bukit Timah
Road), and converted them to dedicated co-living facilities. Since 2016, the
company has gained at least 250 members across 36 nationalities.
On the other hand, the business model of lyf, which is backed by The
Ascott Limited, is a mix of owner-operated and management-contract
basis. Their first co-living facility in Singapore, lyf@SMU, is a Living Lab at
the Singapore Management University (SMU) which The Ascott Limited
co-invested and co-managed with SMU. For lyf's facility at Funan
Singapore, The Ascott Limited, through its serviced residence global fund
with Qatar Investment Authority, reportedly paid S$90.5 million (mn) to
CapitaLand Mall Trust, to acquire the land for the serviced residence
component and will spend an estimated S$80 mn to develop lyf's flagship
co-living facility in Singapore. The Ascott Limited also won a management
contract from developer Low Keng Huat to manage lyf Farrer Park, which
is expected to be completed in 2021.
Ascott Residence Trust has also successfully acquired a 60-year
leasehold, prime greenfield site from JTC for S$62.4mn, to build and
operate the first co-living property in one-north under the lyf brand. This
facility will allow co-living residents to have their own bedrooms with an
attached bathroom while sharing communal spaces such as kitchens,
lounges and living/entertainment areas with other residents. This plot of land
is zoned residential and will be approved for serviced apartment use to cater
to residents who are envisaged to stay between two weeks and a year.Industry Perspective
Real Estate & Hospitality 15
Financial dynamics of co-living
The market views co-living’s impact on the conventional home rentals and
vacancy will be limited as co-living constitutes a small portion of the overall Generally, co-
market. From an investment perspective, co-living does offer a relatively
higher gross yield. Asking rents for a common bedroom and master
living space
bedroom at Hmlet @ Sarkies average S$1,400 and S$1,800 a month may yield
respectively. While rents for co-living space versus standard rents do not
vary much, the former provides additional room services. Hmlet can
3.0%-4.0%
achieve 3.0%-4.0% in average rental yields for property owners. This is
on average for
slightly higher than the 2.5%-3.0% in Singapore’s residential market. property
owners, slightly
A big plus for property owners is that the outsourcing to a co-living operator
higher than the
reduces the hassle of dealing with wear-and-tear issues especially for
multi-unit owners. More importantly, the co-living operator has a ready pool
2.5%-3.0% in
of members to tap on to fill up vacancies quickly. As well, the member-only Singapore’s
events at its co-living facilities help to build a strong community in a co- residential
living space. market.
Evolving risk profile of a co-living operator
The profile of a co-living operator is de-risked gradually when it is able to grow
to a critical mass. They will be in a position to sign up longer leases and adopt
a profit-sharing model with the landlords. Besides the minimum 3-month stay,
the lease renews automatically each month and provides flexibility to millennial
professionals who may be in Singapore for the short term and do not want to
be tied down by long leases. Encouragingly, at Hmlet, the average stay of
members is 13 months. With a shorter lease tenure, the operator can mix and
match its leases to diversify the lease expiry profile of its portfolio.
Driving the business core of Hmlet is technology, where all members are
connected via an app which allows them to chat with other residents,
request services and lodge complaints. Data collected through the shared
platform is used to inform decisions, such as matching members who live
in the same unit and how to design spaces.Industry Perspective
Real Estate & Hospitality 16
Summary overview
In Singapore, co-living space primarily appeals to millennial expatriates -
the main catchment demographic in this space and could potentially dilute
demand for traditional serviced apartments. In fact, out of Hmlet’s 250
In Singapore,
members, majority of them are British and French. The strong demand has co-living space
been underpinned by the rising number of single-household expatriates primarily
engaged on a contract basis or working on project assignments. The one- appeals to
stop services offered by co-living operators provide expatriates with an millennial
alternative accommodation option that is simpler than renting a
conventional room and cheaper than renting a serviced apartment or hotel.
expatriates.
In the same light, some academics and students on exchanges with local Take-up from
universities also turn to co-living as a bridging accommodation option while locals is
they are here. relatively
Despite the popularity of co-living among the millennials, the take-up from
weaker due to
locals is relatively weaker in part due to Singapore's high homeownership SG's high
rate which is facilitated by the ability to unlock their savings in their Central homeownership
Provident Fund (“CPF”) Ordinary Account for acquisition. In addition, the rate.
culture of being provided for at home also means that young millennials have
developed inertia to move out when they grow up. However, over time,
should the cost of home ownership rise sharply and become an undue
burden, demand may shift towards co-living as a viable option as these
millennials wait out for home prices to moderate to a more affordable level.Industry Perspective
Real Estate & Hospitality 17
Appendix
Breakdown of tourist arrivals in Rising share of Chinese tourists
ASEAN particularly in Vietnam & Thailand
140 35%
Brunei
120 Myanmar 30%
Laos Vietnam
100 25%
Cambodia Thailand
80 20%
Millions
Philippines Singapore
60 Vietnam 15% Phillipines
Indonesia Indonesia
40 10%
Singapore Malaysia
20 Thailand 5%
Malaysia
0 0%
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2019
Source: CEIC Database, Euromonitor, STB Source: Euromonitor
Visitor arrivals in SG hit an all-time …but average length of stay has
high in 2018 … eased
20 12% 8
18 10%
16
8% Rest of Asia 6
14
6% China Overall
12
Millions
India
Days
10 4% Indonesia
4
8 Indonesia Malaysia
2%
6 Malaysia China
0% 2
4 ex Asia India
2 -2% Total Arrivals
(RHS)
0 -4% 0
2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018
Source: STB, UOB Source: STB, UOBIndustry Perspective
Real Estate & Hospitality 18
Appendix
Tourist spending in SG also Room supply growth in SG
reached a record high in 2018 expected to slow down
30000 90 8%
80 7%
25000 Others
70
6%
20000 60
Sightseeing, 5% Hotel
Thousands
Entertianment 50 Room
Millions
& Gaming 4% Stock
15000
40
F&B % yoy
3%
10000 30
2%
Accomodation 20
5000 1%
10
Shopping 0 0%
0
2011 2012 2013 2014 2015 2016 2017 2018
Source: STB, UOB Source: Fitch SolutionsIndustry Perspective
Real Estate & Hospitality 19
Contacts
Real Estate & Hospitality Team
Lam Li Min Kelvin Ngo
Head of Real Estate & Hospitality Business Insights & Analytics
Centre Of Excellence Kelvin.NgoYW@UOBgroup.com
Lam.LiMin@UOBgroup.com
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