Co-living and Student housing in India
India adds 2 million college graduates every year to its workforce. Most of them want hasslefree serviced apartments with a sense of community. The opportunity for co-living operators is massive.
Anyone with a passing interest in the business and economics knows that sharing economy is the future. Sharing economy is where demand meets supply. It all started when the internet revolutionised communication. The Internet created a level playing field, and it incentivised the organisations to digitise data. Search engines and social networks changed the way we access information and communicate. Then came Uber and Airbnb who showed that consumers can use fixed assets without owning them. They were the early pioneers of this sharing economy. Taxis and hotels had existed for decades, but these companies made them more accessible via the internet.
Ola, Zomato, Swiggy, Awfis, 91springboard, and Oyo started the sharing economy revolution in India. Once we started sharing automobiles, kitchens, workspaces, and hotel inventories, the scene moved to the housing sector. The nascent industry was christened co-living – an ode to the coworking industry. Companies like Nestaway started offering shared accommodation to millennials and other young people on the internet. Now it has become the next big thing. Within the co-living sector, several dynamic startups have sprung up who offer customised solutions to different sets of young people. Students are one such group.
Why student housing is important?
India suffers from a chronic lack of student housing. None of the public universities has enough hostels, as student houses are called in India, for their students. Most private universities also suffer from the same problem. Small private unorganised players have traditionally met this scarcity in the student housing. These operators manage small decrepit buildings with no facilities. As a result, most immigrant students face difficulties in finding liveable quarters. Many of them also have a budget constraint. There is not enough high-quality, affordable housing for young people in this country.
On top of that certain problems are endemic to India. For example, most property owners avoid students, young working professionals, or unmarried couples. If you want to rent a house with your partner in this country, you won't find it easy. No wonder so many ambitious entrepreneurs see a massive opportunity and are solving this seemingly stupid problem.
Over the past few years, millions of Indians have gone to study in Europe and North America. They know how students live and interact in these countries. And now some of them have come back and started firms that offer high-quality accommodation for the Indian youth, similar to what they experienced in foreign universities. These co-living startups are setting up new standards in terms of quality, living environment, and amenities by offering affordable, decent living quarters to students and young professionals. These new-age student dorms offer shared spaces where people with similar interest areas spend time and learn from each other. They aim to create communities than traditional condominiums.
Purpose-built student accommodation (PBSA) in other parts of the world
Purpose-built student accommodation (PBSA) is a big global business. PBSA has emerged as a new asset class, and global pe and pension funds have invested billions of dollars in PBSA assets over the past few years. The United States (US) and the United Kingdom (UK) remain the two most mature global PBSA markets when measured by investment volumes. Canadian Pension Plan Investment Board (CPPIB) backed platform, Scion Student Communities, bought 24 US properties last year for $1.1 billion. Singapore Press Holdings (SPH) has added £133 million worth of assets to its UK PBSA portfolio over the past 12 months. SPH now owns 5,059 beds across 20 assets in 10 cities in the UK. European PBSA giant Collegiate is raising £2 billion to expand its global portfolio. It is developing 700 new state-of-the-art student bedrooms in Milan, Italy. Unite Group, another student housing giant, has agreed to pay £1.4 billion for the UK arm of Liberty Living. This deal will create a £5.2 billion colossal MNC with over 73,000 beds. Early this year, Brookfield Asset Management acquired a 1,200-plus-bed facility, Ecla Paris, from Harrison Street Real Estate Capital for an undisclosed amount.
Indian PBSA market
More than 10 million people enter the Indian workforce every year. Around 20% of them have graduate or higher degrees. That is 2 million new college graduates every year. If we assume that every student studies on an average of 4 years in the university, we have a market size of 8 million PBSA beds. If we assume 25% of these students in top 6,7 cities, we arrive at 2 million. The average rent of ₹12,500 per month gives us ₹150,000 annual revenue per student. ₹150,000 times 2 million is ₹300 billion or $4 billion. This is the annual PBSA market potential in tier 1 Indian cities. JLL, a global real estate brokerage powerhouse, estimates a business opportunity of ₹1000 billion in the Indian co-living sector by 2023. Knight Frank, another global property consultancy, pegs the required investment at $50 billion for PBSA in India. On the contrary, Indian PBSA sector attracted investments of barely $100 million in 2018. This is not even 1% of the investment requirement estimated by Knight Frank. Some experts question the propensity of Indian students to pay ₹150,000 rent every year. While this number does sound high, it is unfair to compare these modern dwellings to the decades-old, dilapidated private student and co-living housing that is currently the norm in the market. Some private universities are already charging in this range. So there exists an operational market for PBSA and other co-living accommodations at this price point. Most economic think tanks forecast nominal per capita GDP in India to grow in the range of 10% over the next couple of decades. An emerging middle class will garner a disproportionate share of these income gains. A 10% increase in per capita GDP doubles the income in 7 years. The ability to pay for high-quality co-living accommodation will multiply over the next few years.
Indian co-living and PBSA startups
NestAway Technologies, a Bangalore based home rental network, was the first Indian startup to target young working professionals. It was founded in 2015 and has a presence in all big Indian cities. NestAway Technologies, backed by NYC based Tiger Global Management, has raised more than $100 million of venture capital. India's largest hospitality startup Oyo Rooms, valued at more $5.7 billion, has also ventured into the co-living space. Their product, Oyo Life, is geared towards both young professionals and university students. Oyo Rooms has raised more than $1 billion in private equity including $800 million from the Softbank Group.
Housr technologies, co-founded by industry veterans Kalpesh Mehta and Deepak Anand, raised seed money at $30 Mn valuation from the promoters of Lodha, Godrej, and Unimark groups. Housr has already leased 10,000 beds from developers in Gurgaon, NOIDA, and Kota. Bangalore based Colive, founded in 2016 by Suresh Rangarajan, aims to provide branded serviced shared living spaces to single professionals and young couples. It raised $9.2 Mn from the real estate company Salarpuria Sattva Group in April. Zolo Stays, another co-living startup from Bangalore, raised $30 Mn in series B round from IDFC Alternatives, Mirae Assets, and Nexus Venture Partners. Zolo Stays manages 16,000 beds in 157 properties across India and is targeting 50,000 beds by the end of this year. Tribe Stays, CoHo, Flathood, and StayAbode are some other active Indian co-living startups. All of them are backed by prominent angel investors or early-stage VCs.
OxfordCaps and Stanza Living are the 2 most vibrant companies in the PBSA sector. OxfordCaps raised $8 Mn in its Series A round and have more than 6.000 beds under their management. They are headquartered in Gurgaon and are looking to expand to other student towns – Ahmedabad, Bangalore, Dehradun, Indore, Jaipur, and Pune. Times Internet, Kalaari Capital, and 500 Startups have invested in OxfordCaps. Stanza Living, another student housing startup based out of NCR, has raised more than $14.5 Mn of debt and equity capital. Sequoia Capital is the biggest equity investor in Stanza Living. Sandeep Dalmia and Anindya Dutta, both IIM Ahmedabad alumni, founded Stanza Living in 2017. Stanza Living manages 12,000 beds in NCR, Bangalore, and Jaipur and plans to bring another 10,000 beds under its fold by the end of this year. Placio and Studentacco are 2 other PBSA startups that have raised seed capital over the past year.
Where is the Indian co-living market is headed?
Indian co-living industry has a place for multiple players because of its humungous size. One company, no matter how well-funded, can't cater to the entire market. But it is inevitable that as the market matures, some of the current startups will run out of money or merge with bigger players. It is a no-brainer that the industry will grow multifold over the next decade. There is more than enough PE and VC interest in the sector. This means that capital won't be a constraint in the future. These companies are trying to solve a critical problem, and all of them have similar business models. So it will boil down to execution. The ones who best manage their operations will thrive and become the next unicorns. Rest will shut shop or exit by selloffs. It might turn out an industry dominated by a few big players. We don't know what lies ahead. There are exciting times ahead for co-living businesses.