After bearing the brunt of the pandemic, India’s co-living startups are bouncing back with signs of a strong demand in the past few quarters. However, with a slowdown in both mid- and late-stage funding due to macroeconomic factors, co-living and shared-living startups are yet to close any large private equity or VC-led rounds in the current year.
Prior to the covid-led disruption, most co-living startups such as Nestaway, Oyo Life, Zolo Stays, Stanza Living, Colive and Isthara were present in two uses cases – student housing and for salaried executives. Although few startups like Nestaway and Zolo Stays have attempted to foray into co-living offerings for families, the reception for such projects has remained dismal.
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Between 2015 and 2019, many of these startups went on to raise multi-million-dollar rounds at high valuations, but the covid blow erased occupancy rates overnight, and many even struggled to meet payments to vendors and property owners during the height of the pandemic in 2020. Nevertheless, with the reopening of offices and colleges, coupled with record vaccination numbers, co-living startups are once again on the radar of investors, albeit from debt providers.
In March 2022, Stanza Living secured $57 million in debt financing led by Kotak Mahindra Bank and RBL Bank, and from venture debt provider Alteria Capital. Bengaluru-based Zolo Stays is currently in early-stage talks with growth investors to raise up to $100 million for its Series D round, FE reported in the same month.
Speaking with FE, Zolo Stays’ CEO Nikhil Sikri said that although funding talks have received positive responses from investors, the startup doesn’t plan to immediately close a funding round due to unattractive macro factors.
“We are planning to raise a round that is certainly much higher than the previous valuation since our business is much stronger than pre-covid itself. But these days most funds are sort of taking a pause and reflecting on their previous investments, and we are also not in any rush to close the round immediately,” added Sikri.
Zolo began expanding into the co-living space in 2015 and today it has around 50,000 beds across 300 properties in 13 cities. Sikri told FE that the startup is now targeting to hit 100,000 beds by end of 2022.
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According to a recent study by investment management firm Colliers, the Indian co-living market value is estimated to be at Rs 2,500 crore in 2022, with investors having already pumped in close to $900 million in the segment over the years. Colliers further estimates that the Indian co-living segment is expected to have 4,50,000 beds mainly driven by organised players by 2024 as opposed to 2,10,000 beds by the end of 2021. But a majority of this is catered to replacing traditional accommodation options such as PGs, and private hostels that mostly house students and early career professionals. These startups are yet to fundamentally disrupt India’s vast rental market dominated by middlemen or the residential housing market itself.
Suresh Rangarajan, CEO, Colive, said that with rising education costs and health care adding to the high inflation, today’s salaried class always finds it a challenge to buy a home. He added that from an earlier average home-buying age of 29 or 30, today an average urbanite starts thinking about buying a home when in the mid-30s. That’s a 5-year shift in the home buying age based on various factors that have added to the pressure on rental homes.
“The entire 17-year life cycle of Indian urbanites is spent in rental apartments. The total number of renters is 56 million across these age groups in the top 10 urban markets and the estimated annual rent paid by them is approx $40 billion. This opportunity to disrupt is waiting to be explored by the Indian startup ecosystem,” Rangarajan pointed out.
Elsewhere in the US, where experts say that the addition of new residential homes is just not keeping up with housing demand, VCs are already trying to fill in the gap by directly investing in real estate and subsidising the ownership for tenants.
Former WeWork founder Adam Neumann’s recent $350-million fundraise at a whopping $1-billion valuation from renowned VC firm Andreessen Horowitz for a startup that looks to disrupt ownership of residential housing has had the industry in splits for a while now.
However, Indian founders and investors in the co-living segment believe that launching such a model in the country might be close to impossible due to Indian regulations. Dr Sikri of Zolo Stays said that Neumann’s new startup is essentially a recreation of the existing multi-family apartment (MFA) model that is already present in the West. But Sikri says that with a respectable fund such as Horowitz betting millions into the idea, Indian investors and founders may have to pay attention.
Nonetheless, co-living in India is still in its nascent stage and the startups are constantly updating their models. Colliers pointed out in its recent report that although many investors are already actively pursuing options in the market to invest in co-living facilities, the “lucrativeness of a higher yield compared to a traditionally rented house has resulted in an influx of new players every year”.