How Co-living Space Providers are Pushing the Envelope
Co-living is one of the most significant contributors to the rental real estate sector in India. This revolutionary concept started only a few years back in India but has gained considerable traction over the last two or three years after the entry of organised operators into this space.
The co-living sector has grown significantly across the world in the last few years and has benefited because of the shared economy culture, especially among millennials and Gen Z. As a concept, it has been around for a long time in the form of Paying Guest (PG) accommodations, and guest houses run mainly by unorganised players locally in every micro-market.
Rental housing in India is bound to grow very fast due to the fast pace of urbanisation and the Government’s thrust to support it by coming out with the Rental Housing Policy launched by the Government last year to cater to the housing needs of migrants. There is a significant influx of people into India’s major cities from smaller towns and villages as part of this urbanisation initiative. It started with the students flocking to major educational hubs like Bangalore, New Delhi, Mumbai, Pune, and Chennai to name a few. Then they get into employment hence creating demand for rental housing right from the student days.
Co-living can contribute significantly to rental housing growth in India and economic development by creating jobs in the sector and many other ancillary industries. It caters to all forms of rental housing tenants, right from students to working professionals and also senior citizens. Co-living caters to basic housing needs and promotes community living, which fulfils an individual’s social needs.
As an industry, co-living has seen the entry of prominent real estate developers and startups using technology platforms to create and differentiate their product. For developers, as a diversification strategy and creating a rental income stream that can later be listed through a REIT has prompted them to enter this space.
Several startups are trying to disrupt the industry by creating tech-enabled business models which can be scalable, drawing interest from venture capitalists and institutional investors.
The industry is yet to see any significant built-to-rent developments, but soon we may have many such projects coming up. The advantage of such developments is that it usually is purpose-built and provides an opportunity to create all the required communal spaces to optimise space requirements.
There is already interest from the investor community for co-living or rental housing because of the potential to generate a higher yield than the residential asset class. The pre-pandemic era had already witnessed some significant investors making a beeline to inject funds into the student housing and co-living operators. Platform-level deals were also made by large scale venture capitalists who wished to invest in the space.
Co-living players have an opportunity to collaborate with institutions and manufacturing companies to cater to the demands of the migrants. The rental housing policy is prepared to keep the same in mind and create a win-win proposition for both parties.
The co-living industry got severely hit due to the pandemic as most of the people went back to their hometowns as the colleges and offices closed. We have started seeing the demand returning once the lockdown restrictions were lifted and colleges and offices opening up incrementally.
It has provided an excellent opportunity for acquisition taking advantage of the market conditions for newer players. The landlords’ expectations have also become reasonable, and many are open to discuss revenue sharing models, which significantly reduces the overall CAPEX and creates a win-win situation for both parties.
The demand for rental housing, especially co-living spaces, will go up in the medium to long term. There is a huge demand and supply gap, so there are enough opportunities for newer players to enter the market. The market would favour the organised players as they are the ones who offer safe, secure, hygienic and collaborative spaces for the community. The pandemic has raised consciousness on the above factors in the minds of most rental real estate investors.