A resilient asset class – Purpose built co-living

Published: July 14, 2020 6:44 PM

As long as there is demand for affordable city-centric accommodation, co-living will be a lucrative business for brands who can make their tenants feel at home, even in a pandemic.

real estate, real estate in India, co-living, co-living space, A resilient asset class, purpose built co-living, covid-19Globally, co-living is showing signs that it is a resilient asset class, even in a pandemic.

Earlier this month New Zealand had declared itself as ‘’Covid-19 Free’’. The new normal for Kiwis looked a lot like the old normal, no social distancing, coupled with hugs and kisses. On the other side of the world in New York, 20% of the general public had antibodies, compared to about 12% of frontline healthcare workers. This shows masks, gloves, sanitizers and following protocol works. Our hygiene consciousness level has reached a new peak, we are adapting to more hygienic processes.

Mark Twain once famously said: “Buy land, they’re not making it anymore.” Real estate is one of our most scarce resources. Dedensification is a luxury we cannot afford; behaviour change is a lot cheaper. Covid-19 is and will be changing our behaviour more than anything.

Urban population in India is at 34.9%, one of the least urbanized countries in the world, with a 2.37% urbanization rate, more than 3.3 crore people are migrating to the cities each year. These are mostly millennials migrating for work & education. To put things in perspective: Canada’s population is 3.7 crore.

Unlike nursing homes, co-living sector’s customer base is not dying, student housing has proved many times that it is recession proof, but now it is apparent that it is not pandemic proof. Education is getting disrupted; Online education cannot replace on-campus education but, it has the potential to pose a threat in the long term to tier II & III educational institutions with mediocre offerings, student housing might get affected indirectly.

As Sir Edward Coke said, “For a man’s house is his castle, and each man’s home is his safest refuge,” this is the most prominent thing we all learned in this pandemic. Our living arrangements, the typical residential floor plan has been around for ages, the only visible evolution in time is a decrease in unit size. The typical 1,2,3 BHK units are designed for families and in major cities because of the underlying land value; the young, single, migrant millennial can not afford to rent on their own and actually an individual doesn’t need all that space. A good example of this is the “Tiny house movement’’.

To put it simply, purpose designed & built co-living is the new age residential product for the young single individual. Globally, co-living is showing signs that it is a resilient asset class, even in a pandemic. Reputable coliving players operating purpose-built, large-scale facilities, who are also complying with strict hygiene codes are proving to be safe harbors during these times. These brands in US-UK-Europe-Singapore are able to ride the pandemic out without suffering huge drops in occupancy, the main reason behind this is the tenants see these facilities as their home, so if one can make people feel at home, they won’t leave.

Paying guest & co-living players operating in makeshift buildings in India are feeling the pain, mostly because their tenants do not feel at home. We will see a shift in consumer preference from unorganized market substandard buildings to institutional- purpose built facilities that are health & safety compliant. As long as there is demand for affordable city-centric accommodation, co-living will be a lucrative business for brands who can make their tenants feel at home, even in a pandemic.

A Sustainable model – Revenue sharing will be the new normal

Fixed lease commitments & minimum guarantees are as good as the balance sheet of the underwriter, many landlords unfortunately found out the hard way. Hospitality industry again is a good example here, we never see international hotel brands leasing buildings, instead they take buildings on either management agreement or license their brand as franchise, nobody guarantees anything. The right way forward for the asset light co-living operator is the same, revenue share with no guarantees will become common practice but landlords will partner with brands that can deliver on their promises.

(By Kahraman Yigit, Co-Founder and CEO, Olive by Embassy)

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