Co-living startups in India | Outlook Business
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Live and let live
Co-living is catching on in Indian cities but start-ups need deep-pockets to stay in the race

Himanshu Kakkar

Ever struggled to find a nice, furnished room in a new city? Most of us who have moved cities have faced the tiring house hunt populated with greedy brokers, intrusive landlords, bad plumbing and mediocre food. But there is a change underway. Co-living is the new alternative. 

For decades Indians have practised this informally — that is, sharing an apartment or a home with private rooms and common spaces. The difference now is that formal business models are being built around it. Moreover, like other new-economy businesses, millennials are at the centre of this one too. 

How is this different from all the hostels or paying-guest housing? For one, it eliminates middlemen or brokers. Two, they are online. And three, they have facilities such as Wi-Fi, cooking, laundry, and recreation.

Anuj Puri Chairman, ANAROCK Property Consultants

“The trend – already popular in the western world — has caught the fancy of the millennial workforce. The younger generation, aged between 20 and 30 years usually look for more than bed-and-breakfast deals,” says Anuj Puri, chairman, ANAROCK Property Consultants. Typically, room rents in such set-ups can range between 6,000 and 40,000, depending on the city and locality.

Facetime Factor 

Start-ups such as Zolo, NestAway, CoHo and Stanza Living have been in the business for a few years now in India. In October 2018, India’s largest hotel-rooms chain OYO announced its foray with OYO Living, which was rebranded as OYO Life in February 2019. It has caught the attention of even traditional hospitality players such as Lemon Tree Hotels. In December 2018, the India-based hotel chain and global private equity firm Warburg Pincus announced a JV, with a plan to invest 15 billion initially in this space. 

Kavikrut Chief growth officer, OYOOYO’s chief growth officer Kavikrut says they are targeting millennial students and workers, like many of the other players. “Therefore, there are additional features such as work-from-home desks, yoga and meditation zones, FaceTime and Skype corners, and independent lockers,” he says. Currently, OYO Life has over 150 properties with 10,000 beds ‘live’ or ready-to-occupy (6,000 already taken) in Gurugram, Noida, Bengaluru and Pune. With OYO raising about $1.7 billion so far, it is looking to rapidly expand its co-living business, and is going global — this February, it entered the Japanese market through a JV with Yahoo! Japan. 

OYO leases out a property from an owner, renovates or develops it and rents out the rooms or beds. Maintenance is done by OYO Life too. The start-up’s income is the revenue per bed, minus the leasing, redoing and management costs. This is one revenue model in the co-living space, the other is taking a share of the landlord’s earnings. Under the second, start-ups such as NestAway aggregate and manage rented out properties/rooms/beds, and charge a commission on the rent paid to the owner of the property. 

Going by the funds raised and their rapid expansion into more cities, these start-ups seem to be seeing increasing interest (see: Checking in). Bengaluru-based NestAway, the oldest player in the co-living space in India, has been around for two years now. It is present across 12 cities and homes 55,000 tenants, among which 13,000 are in co-living spaces. The start-up’s co-founder Jitendra Jagadev says, “Our (co-living) rentals in Bengaluru average between 6,000 and 10,000 for a room, but it can also go up to 20,000. In Mumbai, a single room’s rental can be as high as 40,000.” He says prices vary real-time and that NestAway has taken years to develop a platform that tracks it. 

Jitendra Jagadev Co-founder, NestAwayJagadev adds, “What differentiates us is the mobility our network provides to tenants. You live in Andheri in Mumbai today and, tomorrow, if you are transferred to Bengaluru, you just need to pack your suitcases and shift to a new room within our network in the new city.” Among the many properties that NestAway manages, it offers full stack co-living with value-added services, such as food, laundry and entertainment only in 50-plus residences. 

Otherwise, the start-up — which has so far raised $94.2 million — from Tiger Global Management, Epiq Capital, Ratan Tata and Goldman Sachs amongst others — largely helps people rent or rent out their home properties. While the firm reported a revenue of 420 million in FY18 compared to 250 million in FY17, its losses widened to 1.57 billion in FY18 compared to 980 million in FY17.   

Sameer Brij Verma Managing director, Nexus Venture PartnersFrom the same city, Zolo has a presence in about eight cities and 18,000 beds in co-living. It operates as a full-stack player that leases out buildings and converts them into co-living spaces. “Zolo has managed to scale up really well over the past three years with far less capital to emerge as the largest player in the co-living space. There is a huge gap in the managed living space targeting students and young professionals moving to large cities for employment and Zolo is focusing on addressing this gap,” says Sameer Brij Verma, managing director, Nexus Venture Partners.  

They have raised $35 million so far from IDFC Alternatives, Mirae Asset and Nexus Venture Partners. Zolo has a healthy pipeline of properties in various stages of development, which will help it reach around 50,000 beds by the end of the year. According to Zolo, their differentiator is that they encourage occupants to engage with each other over events, classes and so on, and these interactions are facilitated by the start-up. For example, if you take a class within Zolo, you get redeemable points that can be used to pay for a service. During FY18, the company recorded revenue of 270 million and its losses stood at 40 million. It is expecting to clock a revenue of 1 billion by FY19 driven by its expansion across cities. 

Anindya Dutta Co-founder and MD, Stanza Living

Delhi-based Stanza Living, founded only in 2017, focuses on a niche — students. As per industry estimates, nearly 11 million students move within the country for higher education. “Despite generating annual revenue in excess of $14 billion, the student housing industry has seen no fundamental disruption or innovation,” says Anindya Dutta, co-founder and managing director, Stanza Living.

The start-up has already raised $12 million from marquee names such as Matrix Partners India, Sequoia Capital and Accel Partners.  Stanza Living, which operates in Delhi and Noida, follows the full-stack model. They lease an entire building and refurbish it. Rooms come with facilities including meals and laundry, and for rents between 7,000 and 25,000. The cost of setting up a bed ranges anywhere between 5,000 and 15,000. 

Apart from offering residential facilities, Dutta claims they help students in their careers by connecting them with key leaders in their respective industries. Within a year of incorporation, Stanza Living has grown from 100 beds to over 2,000 beds in Delhi NCR, across 16 residences. “We are operating at over 90% occupancy today,” claims Dutta. The company is expecting revenue of 200 million in FY19, as compared to 20 million in FY18.

Fund Draw 

While still in its infancy in India, co-living is being seen as a scalable business. That is why it has attracted a fair share of attention from the venture-capitalist community. Sidharth Rao, CEO and co-founder of digital agency Webchutney, is an investor in several start-ups including CoHo, another co-living start-up and says that the opportunity is massive. 

A PropTiger report on co-living pegs the organised industry in India at $206 million, assuming that supply of co-living beds is over 100,000 today and each bed generates 144,000 per bed per annum. Knight Frank India’s 2018 survey found that more than 55% of respondents of 18-35 years were willing to rent out co-living spaces for 120,000 to 180,000 per annum. 

“It subsidises the overall cost of renting for the tenant and offers a higher rental yield to the owner. For most people in their first or second jobs, having a plug-and-play, fully loaded home is a great proposition,” Rao says. According to Puri, co-living may offer a higher rental yield of as much as 8-11%, as compared to the current yield of 1-3% in residential properties. Co-living spaces could also bring down the consumer’s average cost of living by as much as 10-15%. 

Rao decided on the investment over a couple of phone calls. “This is the first time I have made an investment without meeting the founder. And, it’s working out well,” says Rao. CoHo services over 2,500 tenants as of now, charging 9,000 to 13,000 for rooms in Delhi, Gurugram and Noida. The founders refuse to disclose the funding they have raised so far. 

Runway Needed 

OYO, which entered late but is well-networked with property owners across India and flush with funds, is approaching the market aggresively. Should its heft worry others? 

Puri doesn’t think so. He believes that it won’t be a cakewalk for anyone, however deep their pocket. “Start-ups such as as Fella Homes and Wudstay have already shut shop,” he says. Fella Homes faced funding and scalability troubles, and had to let go of 70% of their workforce. Last year, they were acquired by ZiffyHomes, which is also a room-rental network. Wudstay, a budget-hotel aggregator, was an OYO competitor before they pivoted to the co-living or room-rental model. 

Puri says, “Among the many challenges they faced is the high rental values of the co-living spaces, in comparison to the traditional PGs and hostels.” However, NestAway and Zolo have managed to scale up successfully after proving to investors that they have a sustainable model. 

Puri says another challenge is that these are short-stay homes. Once a person settles down in the city and gets married, he or she will look to move into an apartment. Older and well-funded start-ups though are confident that they can absorb these lifestyle changes. NestAway’s Jagadev says, “If someone wants to live with family, we can upgrade them to flats/houses within the system.” 

Rao of Webchutney believes that entry of OYO is a good development. “OYO entering this space is great validation of the opportunity. This isn’t a winner takes all market. There are several niches to specialise in and there are opportunities for many players,” he says. 

Viral Chhajer, co-founder of StayAbode, which offers co-living spaces in 20 different locations in Bengaluru believes that like the real-estate sector where hundreds of developers co-exist, the co-living space will accommodate multiple players. “The demand for co-living space is so huge that one or two players can’t meet the demand and pricing is not everything. People are willing to pay a price for good service and convenience, and our focus is to build a great community in our co-living spaces. So customers who want to have a sense of belonging to a community will choose us over players with a mass-market offering,” he says. 

StayAbode currently has 1,350 beds and is operating at 97% occupancy. It is partnering with CP Developers to build one of the largest co-living spaces in the country in Whitefield, Bengaluru, which when completed in September 2020 will house 1,400 people.  

Indians have welcomed the sharing economy. Co-riding has become popular — Ola and Uber’s pool riding has grown multiple times in the past two to three years. Co-working spaces are increasing in number too, in metros at least. That should spark hope in co-living start-ups.

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