New darlings of property investors? Co-living, car parks and data centres
- Yields of alternative investment classes potentially higher compared to traditional real estate, analyst says
- Co-living is especially attractive to investors, as young people turn to shared living space in super expensive city
Institutional and Hong Kong investors are increasingly turning to alternative asset classes such as co-living spaces, car parks and data centres as uncertainties in the property market linger.
Skyrocketing property prices over the last decade have brought yields down, making investing profitably tricky, said Dennis Ma, head of research at JLL Hong Kong.
"What we've started to see is a lot of investors are starting to look at asset classes beyond the traditional office, retail and industrial and to some extent hotel [investments]," Ma said.
Yields for residential, warehouse, grade A office, and high street shops have come down from as high of between 3 per cent and 7 per cent 10 years ago to between 1. 5 per cent and 5 per cent as of the third quarter of 2018, JLL’s data showed.
Ma said alternative asset classes have the potential to achieve yields higher by 50 to 75 basis points compared to established real estate sectors.
“In some respects, in these kind of assets, you see the underlying drivers are strong, but it’s really the locals and the institutional investors that are looking at these,” he said.
Of the three investment options, Ma said co-living has seen the most activity, both in terms of investments and operators entering the local market. That’s because the segment addresses one of the biggest challenges in Hong Kong -- affordability.
He added that housing options for graduate students are limited, while renting a flat in Hong Kong -- the world’s least affordable property market -- has in recent years been taking up about 80 per cent of starting salaries of young professionals, up from 45 per cent in 2006.
Hong Kong was ranked as the world’s least affordable housing market for a ninth consecutive year in a global survey released on Monday.
A family would on average need to save up for 21 years without spending a single dollar to afford a home in the city, according to the Demographia International Housing Affordability Study.
That is the longest savings period in the study’s history and beats the previous record of 19.4 years set by Hong Kong in 2017.
The Hong Kong government estimated a shortfall of 13,600 beds for student accommodation in the 2018-2019 academic year, and a recent study by City University of Hong Kong found that 82 per cent of 18-35 year olds in Hong Kong still lived with their parents.
Between 2015 and 2020, co-living schemes in the city are estimated to provide over 1,200 beds, with rents ranging from HK$2,800 (US$357) to HK$20,500. That compares to an average monthly rent of HK$20,000 in the city.
Ma also said the demand for parking spaces will go up, because they have not kept pace with the increasing number of cars. Car ownership in Hong Kong has grown nearly 50 per cent from 409,000 in 2007 to 606,000 in 2017. But private car parking spaces only increased by 9 per cent from 613,000 to 668,000 in the same period.
JLL said that in the last 10 years, car park prices have increased by a compounded annual 16 per cent.
Meanwhile, demand for data storage centres will grow as more companies in Hong Kong and elsewhere increasingly rely on digital technology.
Ma cited a forecast by research firm IDC that estimated global data creation will double every three years until 2025.
Peter Yuen, Savills Hong Kong managing director and head of investment and sales, said the initial investment required for co-living and car parks is about HK$100 million (US$12.7 million), and HK$3 million, respectively.
“As for co-living, the yield is about three times higher than just renting out a regular flat,” he said.
