Betting big on the developing co-living space, Prateek Pant, Head of Products and Solutions, Sanctum Wealth Management in an interview to Aparajita Gupta said that analysis based on the size of the population of millennials in the urban workforce indicate that the co-living space in India is worth $12 billion currently.
Residential real estate has been facing a slump in recent times. The glut in the market has been caused by continued supply from developers and excess inventory, while on the other hand, the demand has been muted due to unaffordability and continued delay in possession for under-construction projects. Having said that, there continues to be a healthy demand from other sub sectors in real estate including commercial, warehousing and hospitality. In addition, we are witnessing a significant demand from the sunrise sectors in real estate: Student Housing and Co-living.
An increasing number of millennials are migrating to different cities for better standard of living or career prospects. Millennials’ lack of interest in owning a home and escalating real estate prices are giving rise to a new way of living: co-living.
Co-living is going to be the next big wave in India, which will alter the real estate landscape in Tier I cities, especially IT hubs. We are witnessing a paradox where, on one hand, there is excess unsold inventory from developers with no takers but simultaneously there is a boom in new development where Built to Suit (BTS) units will cater to the co-living ecosystem.
For developers and asset owners, co-living is expected to generate stable rental income over a longer period. According to a survey by Knight Frank, more than 70 per cent millennials in India prefer co-living as an option due to the flexibility and services available in these accommodations. An analysis based on the size of the population of millennials in the urban workforce, indicate that the co-living space in India is worth $12 billion currently.
The other asset class gaining significant traction is Purpose Built Student Accommodation (PBSA). As per the Knight Frank report, the number of students enrolled in universities is expected to grow to 40 million by 2020. The present demand for PBSA bed spaces across the country is 8 million and only 20% of the current demand is met by universities. Hence, landowners who have land parcels around universities have a significant opportunity to work with developers in developing PBSAs across some university towns. Student housing is economical, well-serviced and fosters an environment of close-knit living, thereby serving as a home away from home.
We have recently facilitated an arrangement between a client of ours to open a 200-bed accommodation centre near the North Campus, Delhi University in association with Your-Space, a start-up, which is into student housing. In fact, Sanctum Wealth has worked with real estate asset owners across Delhi, Mumbai, Ahmedabad, Pune, Bengaluru and even Tier II and III cities including Indore, Manipal and Nashik to get specialist operators as partners in student housing and co-living ecosystem. The unorganised nature of paying guest accommodations and limited hostel accommodations has given a boost to the demand for both these assets. The larger appeal is not limited to quality of accommodation but to the entire social eco-system. In fact, as we witnessed IT Hubs in the past driven by demand from Fortune 500 companies, we are seeing foundations of co-living parks driven by demand from millennials who work in these companies.
The asset owner has the advantage of leasing out property to the operators for a long period at significantly higher yields between 6-10%. Due to the longer tenure of lease (5 – 10 years lock-in) one is assured of stable Income. We also see a distinct possibility for launch of dedicated REITS with underlying co-living and student housing assets leading to larger institutional participation in these asset classes.