Co- living is increasingly becoming popular in India and huge investments are going to be made by the Embassy Group, amounting to INR 1000 crore by 2021. This Bangalore based company will be operating their co- living business under a separate firm named Olive and it already runs a co working business named We Work India. It has plans to raise funds for Olive with a mission to take co living further in the country.
The newest asset class will be launching its first experiential center from Bangalore and it is soon going to launch its flagship project in Chennai which will start with 2500 beds this year. It also has plans of expanding the project to Mumbai, Hyderabad, Pune and Delhi NCR in the coming years. At present, co- living is being considered as the best option for the young professionals who do not want to invest in buying a house in a city of temporary stay, according to the co-founder and CEO of Olive, Kahraman Yigit.
It is expected that the first phase will see a launch of 20,000 beds and each project will be ranging from 500 to 5,000 beds. It will have a range of formats and the projects will aim to dismantle digital isolation. In fact, technology will be the key factor for bringing everyone together. This is also going to become possible because the concept of a shared economy is now gaining prominence across the sector and the group is planning to go up to 100,000 beds in the next five years. The scarcity of spaces as well as the fact that congestion is rampant, is driving young people towards co-living. They get a great combination of a digital economy, technological innovation and owning/sharing models at affordable prices.
The growth of Co-living start-ups in India:
At present, there are more than 12 co-living startups in the country and they mostly cater to Delhi, Mumbai and Bangalore. The number is expected to increase further and according to recent reports, the market is expected to grow at a CAGR of 17% in the next 5 years and Delhi NCR will constitute 40% of the potential market opportunity by 2023. It is expected to be followed by Mumbai at 25%. Some of the start ups are Housr, Colive, Isthara, StayAbode, ZoloStays and Hello World. They have all received funding in 2019 and the co living sector in India is now estimated at $120 million. It is expected to reach the $2 billion mark by 2022 as things get more and more formalized.
Oyo had ventured into the co living segment in 2018 with Oyo Life and the CEO of the company has said that co-living had always existed in India in various other forms. It was only recently being put together as a business idea and the sector was being consolidated and is a new business model for tech start ups. At present, there are more than 36 million students pursuing higher education in different cities and the migrant millennial workforce is also increasing rapidly in the metros. Housing.com has also added co-living spaces and paying guest properties to its service portfolios. The company has already partnered with other organized names like Oyo Life and Zolo and is operating in 12 Indian cities. Presently, it has 500,000 beds in the co living/paying guest segment. The target is to have 1 million beds by end-2020.
Some factors to keep in mind
It has been seen that although student enrollments in universities have increased exponentially in 2018- 2019, only one in six students was able to find a hostel. This demand and supply gap was met by the unorganized sector until now. The entry of the organized players in the sector is bound to hurt the unorganized ones but there will also be some consolidation witnessed in the sector. Organized players are now looking at various options including virtual tours of shortlisted options of users and map-based location searches for particular areas.
The market for rental accommodation will be expanding at 10% annually till the year 2023 as per FICCI reports. This is where the silver lining lies for new players in the segment. Several real estate players and investors are also attempting to foray into the co-living and paying guest categories with revenue generation of approximately Rs. 1.39 lakh crore overall in 2019. Only 2% of this share was garnered from organized players. This share should increase to 15-18% by 2023 with total revenue from the sector touching Rs. 2 lakh crore or even more as per experts. Organized players in this space should account for anywhere between Rs. 30-36,000 crore in revenues.
At present, the total listings of organized players amount to about 2 lakh beds. One bed generates revenue of about INR 12,000 a month and that would translate to the organized sector making revenues of INR 2,880 crore, the figure reached in 2019. About $350- 400 million has been invested in the sector until now. The rental yields of the co- living spaces will be going up as high as 8 to 19% as against the 1 to 3% increase of residential properties. This sector is soon to change traditional renting and it has been driven by a highly mobile millennial workforce. It is also catering to the growing student population and the young population of India has housing options at their disposal which they never had before. It helps them to quickly move into a dynamic work environment, which are ultra- modern living spaces and where a plethora of amenities are already in place from before, as opposed to undergoing the hassle of setting up a flat when one moves into a rented apartment. The rates are pocket- friendly as well.
Other sector inputs
It has been seen that about 40% of the millennial workforce in India is comprised of migrants who want to live in affordable but modern living spaces. This number is going to hit 75% of the total workforce by 2025, as a result of which, more and more organized players are jumping into this space. Of the 37.4 million students pursing higher education in 2018- 19, about 15 million have travelled from other cities to their current city of residence for educational pursuits. There is a demand and supply mismatch that is met largely by the unorganized sector at present. With the government targeting a gross enrollment ratio of 32% by 2022 from 26.3% last year, a huge increase in student numbers will further increase the demand for hostels. VC funds are now being used to grow the business and as mentioned earlier, several companies are planning major establishments in cities like Mumbai, Gurugram, Delhi, Kolkata, Pune, Bangalore, Ghaziabad, Chennai, Noida, Ahmedabad, Chandigarh and Hyderabad. In fact, rentals may zoom up to 5-7% in cities like Noida from this segment as compared to 2-3% garnered from traditional segments.
What is more encouraging is that the co-living sector can provide relief to the developers from another problem. Those who are stuck with unsold residential inventory can repurpose the inventory towards co-living. In the top cities of India, the rental yields of co-living spaces can go as high as 8 to 11 percent as compared to an average yield of 1 to 3 percent from residential properties.
It has been seen that home ownership preferences have changed considerably in the last decade and the supply side also needs to change somewhat. The migrant millennials will be driving the rental housing sub-category of the residential segment. Co- living is set to emerge as the strongest sub- segment and once the Model Tenancy Act is implemented, this would also impact the sector in a big way. At present, the major players are busy understanding what the new age renters want and are busy putting the infrastructure in place for a sustainable tomorrow.
