Empty space is wasted space.
That was the view of thousands of businesses across Australia when COVID-19 locked down the country in 2020. Offices were dumped, and businesses found a new, more cost effective way of operating.
Co-working spaces became a hive of activity, with the likes of WeWork and Hub Australia seeing record uptake. They offered a much more affordable alternative to a full office space. Private offices within these buildings have everything needed for an office, while outside the doors are communal facilities such as kitchens, breakout spaces, and toilets.
Some savvy property developers looked at the blueprint of co-working and worked out how it could be applied to housing.
Gallery Group were an early adopter of co-living, which is still in its relative infancy in Australia, but has been prevalent in the US and the UK for a number of years.
Already a prominent house and land developer across South East Queensland, Gallery Group undertook extensive research and due diligence on co-living, and created their first co-living home in 2020. Now, Gallery Group’s General Manager of Asset Management, Kristy Lord, manages over 80 co-living properties across SEQ, with over 240 tenants.
To be clear, co-living is not a boarding house, or a flat share. Co-living operates in a very similar fashion to a coworking space. In the same way a coworking space is split up into private offices, in a co-living house, those private spaces are the bedrooms.
The bedrooms are the tenants and the tenants alone. They are lockable, they all come with an ensuite, and often with room for a study nook, albeit those tenants who take up residency in a co-living space aren’t often those who work from home. There’s no couples, no families, just single tenants per room.
Of course the big difference between a coworking space and a co-living space is there’s hundreds of offices in the multi-level city buildings (that would make it more like a boarding house). Gallery Group’s houses are developed and built with just three bedrooms.
As mentioned, Gallery Group worked out the ideal house size for a co-living home was three bedrooms. In specific areas around South East Queensland, Gallery Group presents a number of co-living opportunities to investors, part of their wider house and land communities.
They run a full cycle service, from developing the homes to bringing in the tenants and then managing the property on behalf of the investor. This, as well as a number of other factors we explain below, has seen significant interest from property investors from the southern states.
There are two huge pros to a co-living property for an investor.
By creating a purpose-built, co-living home, investors can (and do), receive a higher than average yield than if they were to lease a three-bedroom house out to one tenant.
In Gallery Group’s co-living portfolio, each tenant in a co-living house pays roughly $300 a week, so $900 a week in total for the investor. The cost of the development of a co-living house is around $690,000, which creates a rental yield of over 6.7 per cent. SQM Research’s data around rental yield for three-bedroom houses has the Ipswich region as the best performing around Brisbane, and that’s 4.5 per cent.
That takes care of the cash flow side of the investment, but what about capital growth? Depending on which side your bread is buttered as an investor, capital growth might be more important than rental yield.
As part of the extensive research Gallery Group undertook before building their first co-living home, they worked out how the building would need to be zoned. The good news? The houses are zoned General Residential, so they’re never limited to selling to an investor, which is more common with other investor-built stock.
Co-living houses present as a four-bedroom, four-bathroom home (inclusive of the media room as a fourth-bedroom). That opens up the family buyer, which is 71 percent of households in QLD, according to the 2021 Census.
There are a number of pros as to why a tenant would choose a co-living property.
One of the biggest drivers could be affordability. The median rent across Queensland is now $365 a week, up from the $335 in 2016. A rental at $300 a week would be 17 percent lower than the state median. Costs, including bills, internet, etc, are also all split into three.
There’s also the literal lock and leave component to co-living. All bedrooms have locks, so bedrooms are fully private. There’s also the added bonus of the co-living houses being fully furnished, so there’s no requirement for the tenant to need any furniture or household item. Maybe the odd Nutribullet or George Foreman grill wouldn’t hurt.
One of Gallery Group’s focuses is to place the co-living houses in areas which are generally starved of smaller, more affordable, owner-occupier stock. There’s few one-bedroom apartments in these areas, so Gallery Group’s co-living houses offer both an affordable and rare opportunity to live in a suburb which would traditionally be difficult to enter without a co-living home.
Gallery Group aren’t just breaking into the co-living space, they’re well entrenched and have evolved their offering over the last two years. Over that time they’ve taken extensive surveys, with a survey of over 1,300 co-living tenants offering their insight as to how co-living could be evolved, everything from floorboards or tiles, and the want for features like air conditioning in bedrooms.
There are a number of reasons that separates Gallery Group from other developers who are just breaking into the co-living space.
First, Gallery Group put a strong importance on profile testing their applicants, making sure they match tenants better than those “matching” the couples on Married at First Sight.
They assess applicants based on hobbies and interest, employment status, and a myriad of other categories. Part of this process is to means test the applicant, to make sure they’re not spending more than a third of their income on the rent.
Making sure they stay true to their $300 per week, per tenant target, Gallery Group first reviews the supply dynamics in any given area in South East Queensland.
“Once we have pulled the data, we can say with confidence we can achieve the $900 a week target for a client if they were building in suburb X,” Kristy Lord says.
It takes about three to five weeks to fully rent a property, on average.
Gallery Group already has a strong track record, and a demand profile to match. They held an open day at their Victoria Point estate where they had two co-living homes. Lord says they could have fully tenanted five homes if they had them.
“The area had long been dominated by traditional housing properties, which only targets a proportion of buyers,” Lord says.
“In the rental market however, for a lower income earner, Victoria Point hasn’t really offered a rental solution. There aren’t studios or smaller one-bedroom apartments. We knew that and saw a gap in the market for the co-living option.”
Gallery Group are so confident in what they’re delivering for clients, they offer a raft of guarantees should there be slowdowns in construction, or a longer than expected timeframe to get the homes tenanted.
Gallery Group currently has co-living opportunities for investors in Deception Bay, a coastal suburb in the Moreton Bay Region east of Brisbane. There’s also opportunity in the booming Logan area, as well as further north at Upper Coomera on the Gold Coast.
To find out more about Gallery Group’s co-living service, visit the website here.
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