The tech enabled co-living market is poised to leap forward and grow multi-fold from a meagre $120 million to $2.2 billion in the next four years. Well-funded players are expanding fast in top cities, providing higher yields to property owners and reasonably priced rental accommodation for millennials.
In 2017 the co-living rentals were valued at $55 million and in 2018 it grew by 115 per cent to touch $120 million.
According to the study done by RedSeer Consulting, the market is expected to grow at a CAGR of 100 per cent for the next four years till 2022. This will take the market to $2.2 billion.
“The last couple of years have seen the co-living market grow rapidly to reach a significant scale, driven by players like NestAway and others who doubled supply. However, the next wave of growth is likely to come from models that are significantly different, which would focus on building much larger establishments that are tech enabled and close to major demand hubs. Such models driven by well funded players would enable strong economies of scale along with a consistent consumer experience,” found RedSeer.
While some of the startups are focusing on young professionals, a few others are setting up co-living spaces for students near colleges and universities.
Over the last five years, several co-living startups such as NestAway, Zolo, Stanza Living and CoHo have expanded in major cities. Oyo has recently launched its co-living vertical, Oyo Living. Several start-ups like WudStay, CoLive, StayAbode, Homigo and Square Plums have emerged in the space in the past few years.
Most of them have strong backing of private equity and venture capital funds. Mumbai-based co-living space provider Zolo recently raised $30 million in a Series B round of funding. CoLive and Stanza Living are some of the other startups that got investor funding recently.
As the players are increasing the supply, demand among millennials, who are the largest consumers of co-living spaces, is also increasing. A recent report by Knight Frank found that 72 per cent people of age group 18 to 23 years preferred co-living spaces. Proximity to work and social infrastructure remained their top priority and only 5 per cent people gave importance to rental costs.
“As an asset class, the biggest driving force behind the rising popularity of co-living spaces is young renters moving to new cities and looking for easy access and reasonably priced rental accommodation. Though the concept is novel, it’s here to stay, as Indian millennials currently account for 34 per cent of the total population which is expected to increase to 42 per cent by 2025. We feel that with the recent acceleration of growth in migrant population to key cities, organised players rental housing will be able to bridge the housing gap,” Shishir Baijal, Chairman and Managing Director, Knight Frank India said.
Co-living inventory presents a lucrative rental income opportunity for developers / owner operators. A stable co-living facility generates net yield of approximately 12 per cent, while rental yields from a traditional 1BHK remain at 1.5 – 3 per cent. Co-living further enhances revenue potential as cost of shared spaces such as kitchen and living rooms is amortised over a greater number of bedrooms than in a traditional residential development.