A $93 billion market opportunity is hard to let go of. No wonder startups are going the co-living way despite the many operating challenges.Sindhu Kashyap
Young India has been on the move for a while now. More than ever before, Indians are moving out of their homes and away from their hometowns for either college or work. And they need a place to stay. For decades, options were limited to paying guest accommodation and small flats on rent. Both had their downsides. While the first had almost no personal touch, the latter were often costly in terms of time, effort, and money.
Enter the third option: co-living.
For young migrant workers, co-living startups offer a slice of home away from home: comfortable housing with amenities and the option to be part of a community of like-minded people.
When Nestaway started in 2015, there were hardly, if any, players in the sector. Today, there are over a dozen, including Zolo, YourOwnROOM, SimplyGuest, Colive, Flathood, Placio, StayAdobe, and more. Together, they have raised over $212 million in funding in the past four years, of which Nestaway alone has mopped up $145 million from a clutch of investors, including the likes of Tiger Global.
Now, the space is getting crowded. The latest to jump on to the co-living bandwagon is hospitality heavyweight, OYO. With $1 billion in funding raised last October, co-living is part of its strategy spanning all aspects of accommodation: hotels, housing, co-working, and now, co-living. Another player, Zolostays, recently raised $35 million in a Series B round. Global co-working giant WeWork is also planning to launch its co-living brand, WeLive, in India soon.
Co-living is not exactly a capital-light business. No player in this operationally intensive services business has begun generating profits either. So, what makes the space so attractive?
It is said that for a startup to succeed, it needs to solve a problem or provide a service that people are willing to pay for. And more than anything, it needs to get the timing right, followed by having the right team, enough capital, ability to scale, etc. Co-living checks all these boxes and then some. It appears to be an idea whose time has come. And startups in this space - big and small alike – are lured by the promise of the potential.
Startups, not just OYO and Nestaway, are addressing a large gap in the market. A RedSeer report states that the market for co-living startups in India is expected to touch $2 billion by 2022. The overall segment though, which includes paying guest accommodation and interest from real estate players, is worth a whopping $93 billion over the next 10 years, according to a PropTiger report.
This report states that most of the projected demand will come from college students and working professionals. There are over 50,000 colleges in the country, with over 31 million students. The report also stated that college hostels accommodate around 3.4 million students, whereas the requirement is for over 8.9 million beds.
“The Indian market is dominated by the student population that is looking for comfortable and yet affordable housing. Most end up looking at the unorganised market of the likes of PG accommodations, which hardly have standardisation,” the report states.
Not surprisingly, student accommodation too is gaining traction. What was once characterised by barebones on- and off-campus hostels is being replaced by something better and more standardised.
Student Living provider Oxfordcaps claims it clocked 30x growth in less than 10 months of operations, growing from 200 beds to 6,000. The Delhi and Singapore-based startup, which focuses on student living, recently raised $8 million in Series A funding and is looking to expand in education hubs such as Ahmedabad, Bengaluru, Pune, Indore, Jaipur and Dehradun. Larger rival Stanza Living has already raised S$16.4 million in risk capital.
Bengaluru-based Zolo targets growing nearly 4x to 50,000 beds by the end of the year. Nestaway already had 50,000 tenants in Q4 2019 and is said to be in talks to raise over $100 million to counter OYO, which has a similar target across 10 metros for 2019.
According to a KnightFrank report, as of February last year, people in the 18-35-year age group make up 34 percent of India’s population. These are currently the ones driving the consumption story across different sectors, and real estate is a big chunk of that.
As OYO Founder and Group CEO Ritesh Agarwal recently told YourStory, “Co-living as a segment is fast growing. Finding great accommodation facility for a young immigrant is a challenge even today. When you compare the number of affordable rental spaces with the growing rental population, you see there is a massive gap that still needs to be addressed.”
“It’s a no-brainer. It isn’t just the size, but the kind of audiences the co-living market targets. These are generally immigrant population who currently aren’t looking for permanent accommodation, but nevertheless want a hassle-free experience,” adds an analyst from a consulting firm.
The way co-living spaces currently work, they solve several problems at one go. As Satish Meena, Senior Analyst, Forrester Research, says, “The reason co-living becomes important for the young population is that it provides lesser hassles. No hefty deposits, no demands from home owners, no questions on food habits or friends – all of which regular PG accommodations or flat owners would ask.”
He adds, “With co-living spaces, the idea of high rentals, leasing and costs aren’t there for the consumer. They have everything managed in the cost of the rental - food, amenities like wi-fi, electricity, water, maintenance, and cleanliness.”
Co-living spaces also provide a sense of community. In fact, community engagement was a primary focus of Zolo when it was raising its last round of funding. In its original avatar, Zolo was an aggregator of PG accommodation, but soon pivoted to control the entire experience. It also added a layer of technology to improve residents’ experience.
Zolo has an app for both tenants and property managers to communicate. Customers can raise requests or complaints related to cleanliness, maintenance and repair (plumbing, electricity, TV, Wi-Fi, and appliances), as well as civil works issues (lift not working or larger property related issues) using the app.
For Anuj Kumar, a Bengaluru-based marketing executive, it is this convenience that makes the case for co-living. “Everything is done faster and simpler, I don’t have many touch points. Things work like clockwork and much faster than a PG accommodation.”
And then there is the sense of freedom. Well into the 21st century, it is still difficult for an unmarried individual to get a flat on rent. And when they do, landlords often impose restrictions on who and how many can visit. Co-living spaces have no such constraints. In fact, one of the selling points for Nestaway was that it provided easy housing facilities without asking too many questions.
Ravikanth Rao, a 23-year-old working professional who stays at a co-living space, says there also are fewer restrictions. “Friends, be they men or women, coming home for a party or even just to hang out isn’t a concern. In my previous PG, it was an absolute no-no,” he says.
While there is a demand to be sated and plenty of selling points for success, profitability is tough to crack. Operationally intensive, co-living needs large capital infusions to scale.
“It is one of the spaces that needs patient capital. And currently, there are few investments that can be made,” Satish says.
Consumer satisfaction is another sticky point. A case in point is Bengaluru-based Homigo, which saw several issues from consumer complaints to lack of funds crippling operations.
“It is important that the operational aspects are taken care of at regular intervals. And for that, you need several vendor tie-ups and constant monitoring of the premises. For that, you need a highly trained on-ground staff,” Satish says.
The cost of maintenance itself increases the capex. “When that happens, you need to be very careful and sharp on how you manage both scale and funds,” he adds.
Real estate is also guzzling funds right now. At present, there is little real estate in India that is well suited for co-living accommodation. Most residential buildings are family homes, so players have to start with building infrastructure or adapt what is already present.
“Co-living spaces by definition need a different kind of structure that make interactions and living easier. In India, traditional real-estate players are still to catch up. While startups are tying up with real-estate developers, the buildings themselves need a lot of work,” Satish points out.
OYO has a building acquisition and restructuring model, WeLive has partnered with the Embassy Group, while Colive has raised funding from Bengaluru-based realty company Salarpuria Sattva.
But whether players can scale and make money remains to be seen. In the meantime, if you’re moving to a new city, try co-living.
(Some tenants’ names changed at their request.)