Until recently, markets in Asia never provided much traction for operators of build-to-rent properties. With the notable exception of Japan, local developers always focused on for-sale residential strategies because sales to private buyers generated much higher returns, especially in cultures where homeownership is seen as a priority. As a result, the proportion of institutionally owned residential real estate in Asia outside Japan remains close to zero.

Today, though, soaring property prices mean that governments and developers are starting to see things differently. Increasing numbers of new projects are earmarked for use as long-term rental assets. Nowhere is this trend more apparent than in China, where the central government recently adopted a range of new policies to encourage or compel developers to retain a significant proportion of newly built stock for rent instead of for sale.

Young Professionals Market

For the most part, this emerging sector of for-rent properties in China caters to less-well-off workers who may never be able to buy homes at current prices. All types of rental housing are being pursued. This wave of new renters also includes many single, tech-savvy young professionals who are creating a booming market for co-living facilities—defined as places where residents share living space and a set of interests and values—in cities across Mainland China.

Beijing-based Ziroom is China’s biggest operator of co-living facilities. With a valuation exceeding US$3 billion, Ziroom manages some 500,000 rooms nationwide, according to its website. Competitor Mofang has more than 200 complexes with 43,000 units in nine cities. Major domestic developers also have joined the market. China Vanke, the world’s largest developer by market capitalization, launched its Port Apartment co-living brand in 2016 and now has 60 projects across the country.

As in other markets, Chinese co-living tenants are generally young (Vanke has said that 95 percent of Port Apartment occupants are under age 32). In other ways, however, the Chinese model can be quite different. Given their popularity, many facilities in China impose a selection process, so occupants tend to fit a particular profile.

According to Iris Belle, assistant professor at Shanghai’s Tongji University College of Architecture and Urban Planning, the average co-living tenant “is someone looking for short-term accommodation, has plenty of money, and is well mannered and educated—often with a degree from a foreign university. A high proportion are women, who are attracted by the convenience and safety of this type of lifestyle.”

Facility management tends to be very app-based, partly because tenants are adept at using handsets, and partly because the apps offer operators a way to capture an entire value chain of related services. Virtually everything connected with the co-living lifestyle in China can be done using an app, from property searches to contractual issues to maintenance requests. The bigger players even offer online interior design options from a proprietary range of furniture, meaning that many apartments “feel like an Ikea showroom,” says Belle.

Adapting Older Properties

Relatively few co-living projects in China are newly built. Instead, they tend to be installed into older buildings such as underused office blocks, empty industrial facilities, or misconceived retail podiums that are master-leased by operators over eight to 20 years rather than being owned outright. This asset-light model keeps capital requirements low—a particularly serious issue in China, where property prices are often on a par with those in the West but rents are much lower. This business model dovetails with another emerging policy focus in China—the regeneration of inner-city areas that often feature many old or empty facilities that can be repurposed for socially beneficial uses.

The use of retrofitted stock means that many Chinese co-living rooms have odd dimensions. One foreign investor active in the sector compared the units to bowling alleys, given the need to fit many small, windowed living spaces into buildings with large floor plates.

Despite that, co-living in China is not cheap. One reason the sector has proven to be popular with major Chinese developers is that, unlike mass-market equivalents, co-living developments at least offer the chance to turn a profit. Belle notes that a 15-square-meter (162 sq ft) unit in Port Apartment’s Shanghai Zhang Hightech Park comes at a base price of Rmb4,500 (US$675) per month, with various add-ons adding perhaps another Rmb500 (US$70), making co-living rents higher per square foot than most privately owned rentals in the same area.

With venture capital firms actively engaged in the market, the boom in China’s nascent co-living sector is unlikely to end soon. Many operators are moving upmarket, creating mid- to high-end products for an older and wealthier client base. Plans are in place to adapt the concept to cater to China’s growing population of senior citizens. Belle says, “If you look at the demographics, the next frontier is ultimately elderly singles—widows or those who can’t live with their children but perhaps get an allowance from them. I have been involved in master-planning concepts to create resort-like residences [for seniors] in the countryside, where land is cheaper and the environment better. They start at a younger age, when they are still mobile and want to live with their peers. Then when they age and need medical assistance, they are already in place.”