Growing focus of investors on co-working and co-living segments

– By Prudhvi Reddy

The Indian Real Estate, which hitherto has witnessed a major disruption in the last three decades, is currently undergoing rapid transformation driven by technology-led democratisation of commercial and residential segments, thereby lowering the entry barrier for a new set of investors. This democratisation of real estate is happening with the rise of co-living and co-working segments offering premium office and quality residential spaces in a pay-as-you-use manner, attracting significant end-user investor interest from both institutional and retail investors.

Coworking and Coliving – Newer Avenues in Indian Real Estate

Co-working and co-living spaces leverage technology solutions to streamline administrative tasks, enhance security, and elevate the overall tenant experience. Smart access control systems, booking platforms, community engagement apps, and IoT-enabled amenities optimize space utilization, tailor services to tenant preferences, and identify areas for improvement, thus maximizing operational efficiency and investor returns.

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Coworking spaces help in the democratisation of commercial real estate, allowing individuals, startups and large organisations to use office spaces in a no-frills manner. This allows them to pick up seats instead of an entire office space depending on their business requirements while expanding and downsizing seamlessly and affordably. As the office space and the amenities are shared by multiple occupiers, it allows significant cost reductions and convenience by leveraging shared infrastructure, including equipment, utilities, receptionist and custodial services, and, in certain instances, amenities like refreshments and parcel acceptance services.

Coliving: Enhancing Residential Experiences:

Another interesting trend driven by rising costs and hassles of maintaining a house, which in a way, is inspired by co-working as a concept. The co-living segment offers a residential community living model that provides a premium accommodation experience with a host of benefits, including quality living space, fully furnished apartments, housekeeping services and shared amenities, among other services. The rise of co-living spaces has provided a breakthrough for service providers in enhancing the quality of life for students and young professionals.

These factors are driving the growth of Indian real estate and are opening up multi-million dollar opportunities for the expansion of the sector while bringing immense value for developers, investors and operators. Coworking and coliving properties have emerged as lucrative investment opportunities for investors seeking high-yield returns with low-risk exposure.

A Good Bet for Retail Investors:

Today, developers and space providers are raising investments from investors to acquire income-generating commercial and residential properties and offer yields in the range of 6-10% and upwards through rental yields. The new-age asset classes present compelling investment opportunities for investors seeking attractive yields in the real estate sector. With a growing demand for flexible workspaces and community-driven living arrangements, coupled with diverse revenue streams, mitigated risks, and a focus on technology-driven operations, these properties offer the potential for strong returns and long-term growth. By capitalizing on these trends and embracing innovative approaches to real estate investment, investors can position themselves to thrive in a growing market landscape.

Coliving investments offer better rentals than residential ones, along with the corresponding tax advantages and capital gains benefits at a smaller investment size.

The high yield further assumes significance for retail investors, particularly those who were earlier unable to invest in these segments, like the commercial segment, due to lack of market expertise and high upfront investment costs. Similarly, new-age millionaires and NRIs are looking for a streamlined process to invest in real estate while yielding high returns. Through technology-led alternate investment platforms, investors can look for prime properties to invest in at the click of a button without the hassles of managing the property, which is handled professionally, ensuring financial security.

Investing in coworking and coliving properties provides the ability to generate multiple revenue streams, catering to the diverse needs of freelancers, startups, remote workers, and corporate clients. Coworking spaces offer various membership plans, including hot desks, dedicated desks, private offices, meeting rooms, and virtual office services. Similarly, coliving properties generate revenue through rental income from individual tenants, as well as additional services such as community events, wellness programs, and concierge services.

Compared to traditional real estate investments, co-working and co-living properties offer investors greater flexibility and lower risk exposure. The shared nature of these spaces allows for faster adaptation to market changes and evolving tenant preferences. Moreover, the short-term lease agreements and agile operational models adopted by coworking and coliving operators provide investors with a degree of flexibility to adjust rents, amenities, and services based on market conditions, thereby mitigating risks associated with long-term lease commitments and vacancy rates.

These innovative models have revolutionised the traditional workspace and residential sectors, respectively, providing diverse revenue streams and a focus on community-driven living.

Building Growth Engines For Indian Realty:

International property consultant JLL reports a significant transformation in the flex segment over the past five years. As of FY 2023, the operational footprint of flex spaces stands at 53.0 million square feet, marking a remarkable growth of nearly 400% since 2018. Similarly, the ‘co-living’ market in the country is expected to grow at a CAGR of 17 per cent in the next five years to touch nearly $40 Billion. India, therefore, provides a blooming opportunity for developers, investors and even start-ups in the ‘co-living’ spaces.

The increased focus of these stakeholders on the co-working and co-living segment is fueling the two growth engines of Indian real estate. It is helping expand the market while increasing its organised share. By offering greater convenience and cost savings to occupiers and residents, these segments are emerging as new investment avenues in the industry, thereby garnering greater interest from all quarters. This is leading to the proliferation of co-working and co-living spaces across the country.

These two segments focus on fostering vibrant communities and social interactions among members. By curating diverse communities, these spaces create valuable networking opportunities and collaborative environments conducive to innovation, productivity, and personal growth. This sense of belonging and shared purpose enhances tenant satisfaction, contributing to tenant retention and positive word-of-mouth referrals, ultimately driving higher occupancy rates and returns for investors.