In the last couple of years, we have witnessed the real estate sector breaking away from its stereotypical tenets (residential and commercial) and foraying into opportunities such as Co-living, student accommodations and senior living. These alternate assets have gained prominence as an appealing investment avenue and a new-gen way of living in India. This new dawn in real estate has attracted a cohort of domestic & international private equity investors, institutional investors and other investment funds. Real estate investors are slowly shifting from residential to alternate asset class due to higher rental yields and a bigger return on investment as compared to residential projects.
In spite of economic slowdown and a stuttering job market, student housing and co-living market thrived and thrived well enough for investors to take notice. This sudden disruption is led by students and nomadic working millennials who are redefining the meaning of ‘working’ and ‘living’. They are migrating to metropolitan cities for higher education and jobs where they prefer living in good societies having modern accommodation instead of a traditional house rental model. Higher security deposit, nosy landlords, high brokerages, unnecessary rule imposition, and unsteady rents are prominent factors that are drifting students and working millennials towards this new shared living model.
Market size and opportunity
According to All India Survey on Higher Education 2017-18, nearly 59% of the total students are enrolled in higher education in five states such as NCR, Maharashtra, Karnataka, Tamil Nadu, and West Bengal. As of December,’2018, according to the University Grant Commission (UGC) data, there are 892 universities in India affiliated with nearly 50,000 colleges and institutes. There are around 34 million students in higher education institutions and the unmet demand for student housing remains as high as 30% -60% across the major cities. Nationally, the student enrolment has grown by 13.3% from 32.3 million in 2013-14 to 36.64 million in 2017-18, but there are only a little over 6.5 million hostel beds.
As per PwC report, the residential rental market in India is estimated at USD 20 billion, of which urban spaces account for USD 13.5 billion. Co-living and student housing market size is expected to grow by three times in the next 10 years. Around 95% of an entire rental residential market is unorganized and dominated by paying guests (PGs), hostels, apartment rental by homeowners and local brokers. Currently, the demand for student housing is around 8 million bed spaces which are expected to reach 13 million beds by 2025, as per Global Student Property 2019 report by Knight Frank.
Co-Living and student accommodation are at a nascent stage with the young shared living market reshaping gradually. The national average rental yield from traditional rental housing is merely 3%, but modern shared living spaces can achieve rental yields of 10 – 13%.
A spurt in millennial workforce, fast-evolving consumer trends, and an untapped demand potential are the real drawcards for investors. Nomadic millennials are placing more emphasis on ‘experience’ rather than ‘ownership’ and this trend is set to catapult the demand for co-living upwards.
Global cognizance of shared living spaces
The popularity of co-living and student accommodation are well received by millennials worldwide and they have adopted it without hesitation. According to JLL, India’s urban co-living market is set to take a pole position in the Asia-Pacific region.
According to the Asia-Pacific Co-living Cities Ranking 2019, three Indian cities such as Mumbai, New Delhi and Bengaluru have marked their presence globally in the co-living industry. Mumbai was ranked 5th position followed by New Delhi (11th Ranked) and Bengaluru (19th Ranked). Due to huge untapped potential in the domestic markets, several start-ups forayed in the last two years followed by rounds of investments.
Market players and investments
Despite a prolonged slump in residential real estate, co-living and student accommodation have become the main attraction for investors and developers. In India, co-living and student housing are expected to attract an investment of USD 700 million and the addition of 6 lakh beds in the next two years.
The year 2019 saw US private equity giant Warburg Pincus joining hands with India’s Lemon Tree Hotels to form the USD 430 million co-living joint venture. OYO in Oct’2018 already ventured into the co-living Space and WeLive, a US-based co-living brand is expected to foray into the Indian co-living market. Some of the profound investment firms like Softbank, Sequoia Capital, Warburg Pincus, Matrix Partners, Accel Partners and Goldman Sachs have already dropped roots into the co-living industry.
Indian start-ups are not far behind to grab a share of the big pie. Some of the prominent operators are Nestaway, CoHo, Stanza Living, Zolo Stay, Homigo, Youthville, OYO Life, Yourspace and CoLive. Currently, the top six co-living operators have 1.18 lakh beds and 13 noted student accommodation providers have 1.5 lakh beds across the country. Residential real estate developers are vying to grab an opportunity through collaborations with co-living operators to leverage unsold inventory.
The Road Ahead
Undoubtedly, co-living and student housing are set to be the game changers for Indian Real Estate. This sheer untapped potential is drawing the attention of start-ups, domestic and global investors alike. Co-living operators will collaborate with major brands in the months to come for providing customers access to this new asset potential. With nomads turning their attention to metropolitan cities to tap the world of opportunities, the demand for co-living establishments is expected to be on an upswing. And with the government of India keen on pushing this new trend, the co-living idea is set to take the skies.