Investment Outlook , Published Feb 18, 2020
India’s demographic dividend and high rate of migration to cities for studies as well as work has created significant opportunity. Co-living market is expected to be US $13 billion by 2025.
What is co-living?
The dream of higher education and better work opportunities has had far-reaching results, one of the most significant being the emergence of co-living spaces which address market needs. While this is certainly not a new phenomenon (co-living and student housing spaces have been in existence since the last thirty years), there has been a recent shift towards driving more structure and organization in these sectors. Co-living involves multiple people or diverse young professionals typically of similar ages, professions, education level, income bracket sharing a common living space, which could range from a 200-300 bed hostel building (Stanza Living, Your-Space, Oxford Caps) to single apartments (Oyo Life, Nestaway, Zolo). The co-living market (only operator revenue) in the top 30 cities in India is expected to double by 2025, from the current amount of $6.5 billion to $13 billion.
Apart from the space, most co-living and student housing players also add a layer of value-added services such as food, housekeeping, laundry, security, R&M and common facilities to make it a turnkey solution for the resident. The icing on the cake is the community engagement which these facilities offer in the form of either incidental engagement provoked by the thoughtfully curated common spaces or through organized events (Diwali parties, exclusive trips, speaker sessions, etc.)
Factors contributing to the growth of co-living spaces
Co-living spaces are booming due to several factors, including the increased rate of migration to urban cities, and a large chunk of India’s population being 18 to 30 years of age. In answer, these spaces offer turnkey solutions at reasonable rates. A recent UNESCO study stated that the rate of migration for students in India is increasing at 10 percent p.a., which means that India will have 16.5 million migrant students by 2024. There is a similar increase in the urban migration rate which has gone up to 31 percent in 2011 from 27 percent in 2001, due to an increase in the number of young working professionals. Most of these migrants are either students or young professionals looking for affordable, turnkey residential accommodation in prime and/or convenient locations, which is where the co-living and student housing players get an opportunity to provide solutions and drive more innovation in the current scenario.
Business Models of co-living brands in India
Largely, co-living spaces can be split into student housing and co-living for young professionals. Apart from the target audience, the big difference between the two is the level of operational rigour, which is significantly higher in student housing as operators need to provide an intensely granular service layer encompassing food, daily housekeeping, 24*7 wardens, laundry, security and engagement activities.
Both sets of players operate on three broad models – taking buildings on long term leases (this includes fixed rentals and profit share), operating and management agreements, and an asset ownership model. Most of the student housing and co-living players operate within the first two models, which is contrary to the way the industry has evolved globally. Due to the favourable spread in the borrowing cost and rental yields, globally, most student housing players are asset owners. However, with an inverse equation in India, most players have decided to be operators and tie-up with multiple developers as prop-cos (property operating company). As the industry evolves and continues to organize, large developers/real estate focused PE houses are likely to start acquiring these operators to create a joint prop-co (property operating company) and op-co (operating company) structure.
Future of co-living in India
Given the demographic statistics, increased acceptance of organized co-living over the last 2-3 years and a focus by real estate developers on building tailored co-living accommodations, point to a bright future for the co-living industry in India. With further organisation of the industry, we can expect global brands such as Greystar, Liberty, Scape, etc. to enter India and tap into this opportunity. This is a great time to be in this space!
About Nidhi Kumra
Nidhi Kumra is the Co-founder and CEO of Your-Space. Prior to this, she worked in London as a trader at Lehman Brothers, Bank of America and Merrill Lynch for nearly a decade.
About Shubha Lal
Shubha Lal is the Co-founder and COO of Your-Space, a co-living housing brand for students. Prior to founding Your-Space in 2015, Shubha led strategy roles in McKinsey & Company and Nomura.
Investment Outlook 2020