From Old Hotels to Refreshed Co-living

In recent years, the new trend of coworking and coliving has had a significant rise in popularity, and it has changed many individual’s pace of life. Co-living is a form of shared housing where rent not only covers a room or flat, but also communal spaces and trendy areas to work-out, play a game of mariokart, and dine with others. The of emphasis on co-living is to focus on the social interactions and cultivate an entrepreneurial philosophy among like-minded millennials. This way of living gives the youth around the world a more approachable way to achieve their career aspirations and upgrade their lifestyle at a more affordable method.

In more recent years, landowners, developers, and hotel operators have been looking into developing co-living and co-working spaces. Historically, Hong Kong has several areas zoned as “C/R”, “Commercial/Residential”. This meant that residents are able to live in one part of the building, and also conduct business in that same location. However, it became a controversial situation because residents and business permit users are using the same building services and facilities like staircases, lobby, and elevators. This often resulted in a very disorganized environment and created undesirable interfaces.

To remedy this issue, the Hong Kong government came up with a new zoning, “Other Specified Use”, “O/U”, which included the option to annotate this zoning as a mixed-use development. This meant that the same building could be separated in to two or more parts, and this type of development is allowed as long as each section of the building has a separate way to enter and exit the premises. This change in zoning improved the building use significantly and provided a solution for previous issues, but still leaves an ambiguous guideline on co-living and co-working developments. We believe that the current zoning should include a new clause in current “Other Specified Use” zoned areas to be able co-living and co-working environments.

Current implementation of co-living options in Hong Kong can only be found on a hotel operation level. This happens particularly in areas zoned for hotels because a hotel license allows co-living spaces the flexibility to be rented out on a daily, monthly, and annual basis for a variety of activities. However, areas zoned for residential development can only be rented for a minimum of one month. This imposes on the flexibility aspect of the dynamic co-living business model which otherwise restricts the flexibility of working and living in the same building.

A phenomenon we currently see in Hong Kong is the transformation of old hotels utilizing its existing operation and zoning guidelines to serve this new business model. This allows for those developments to accommodate both domestic and non-domestic use in the same building. Examples of hotel operations transitioning in to co-living accommodation can be seen all over Hong Kong, and one specific case that comes to mind is Mojo Nomad Aberdeen Harbor in Wong Chuk Hang. It currently has 65 rooms and 250 beds, averaging around 3.85 beds per room. This transition was designed to cater to the rising demand of new travelers that also seek working environments.

Various sources reported that there are over 90% of the residents are aged between 18 to 35. Within this population, 20% are students and 30% are young professionals. Reports also estimate that there are 95,000 full-time undergrads across 8 universities in Hong Kong, with only 36,000 places as student residence. As the data suggests, this market is underserved. Industry leaders also suggests to hotel owners and investors that this business opportunity can improve rental yields up to 12.1% if they convert an existing hotel property into co-living accommodations. A simple financial projection of converting a 26,000 sqft. property that is built on a site that is worth $400 million, costs around $60 million (approximately $2,307 per sqft.). Taking an industry average occupancy of 70%, the estimated break even timeline on this conversion project is around one year.

As the data and research suggests, transformation from a traditional hotel to a co-living property is extremely attractive financially. The planning department should consider this trend as something that could revolutionize the way we look at residential zones, and allow for this property product to flourish in Hong Kong.

Frank Wong is the managing partner of planning and development at Pruden Group