The global pandemic has altered the course of every business. The co-living/PG business, one of the sunshine sectors in Indian real estate, was hit hard due to the economic fall-out of the pandemic. Job losses and remote working prompted employees to go back to their hometowns, resulting in zero to low occupancy in co-living/PG units throwing the business off track.
However, with the economy and businesses bouncing back to normalcy, there is finally some light at the end of the tunnel for this sunrise industry. While occupancy remains low, we are witnessing a 50% increase in demand across key markets such as Delhi, Bangalore, Pune, and Ahmedabad. Mumbai has seen a moderate rise of 20% while the demand in the markets of Kolkata and Chennai has been stagnant. Most of this demand is currently being driven by the gig economy workforce and this trend seems to be auguring well for the industry that has seen occupancy dropping by 60%-70% during the pandemic.
With signs of revival on the horizon, the industry has to meet the new consumer demand and adjust to the paradigm shift that happened in the last eight-nine months due to the economic fall-out of Covid-19. The factors that would be key for the revival of this industry are:
Delivering hygienic and safe environment: Aspirational living has taken a backseat now. Our data suggests that hygiene and meals on the premises are the two most sought-after features for tenants. Personal wellness is the biggest factor that will be a major USP that co-living and PG players have to deliver to meet the new consumer demand. They need to focus on employee training, safety audits and create awareness drives among residents to ensure a hygienic and safe environment. Community well-being, health and hygiene, and strict SOPs are now part of the shared living experiences
Demand is ranging from single-room to triple sharing: With personal wellness taking centre stage, the demand is now between single and triple sharing. Gone are the days when residents were comfortable with four-five beds in one room. The current norms around social distancing have increased the demand for rooms with lesser beds. Even six months ago there was demand only for single rooms and double sharing but it now has spread out evenly to triple sharing as well. More than ever before co-living and PG operators are offering single rooms. Demand mostly for single and triple sharing would lead to a cut in number of beds by the operators. However, this would also be an opportunity for new entrants in meeting the shortage of beds. There is a lot of pent-up demand in the market and once colleges and offices start opening by April-May, this is slated to surpass the pre-Covid-19 levels and would stand in good stead for new entrants.
Getting the right supply and pricing: Co-living and PG operators now are staring at a dual challenge. While one remains cutting down on the number of beds, the other is falling prices due to lack of demand. Currently most of the demand on our platform, almost 83% is in the sub-₹5000 category. Pricing remains a sensitive issue in the industry and for all the operators getting the right supply for the right price for the target group is key.
Changing the economics of rental return: Amidst a challenging business environment, the model of the shared rental has to address the age-old problem of dwindling rental returns. For a co-living business to succeed, it must offer significant economic value to the supply side, while continuing to offer rooms and beds at attractive price points to woo millennials. The average national rental yield in the residential segment is just 2%-3% and this is much lower than what is prevalent in advanced countries, also much lower than yields for commercial properties. Co-living must demonstrate a model that could earn an effective rental yield of over 8% for landlords. Industry data suggests that co-living operators generally work on a 10%-20% profit margin, depending on the amenities provided, and homeowners get an average rental return of 8% which is higher than the conventional return of 2%-3%. Changing the dynamics of the ‘economics of return’ would ensure more supply in the market to address the rising demand.
For India’s youth, access is the new ownership. They want to experience everything without the perils of owning anything. Owing to their working requirements, asset light model, and on-the-move lifestyle, Co-living has emerged as a popular model for the young working professionals and millennial in India. Co-living and PG operators now have to deliver a safe and hygienic environment as well. The rules of business have changed and the Co-living and PG business have to adapt to it to sustain and grow.
Views are personal. The author is CEO, Magicbricks.