WHY INDIA’S CO-LIVING STARTUPS NEED A RESET
The co-living business was battered during the pandemic. Now, a revival is in the works
spreading themselves thin by scaling to multiple cities.
Among the early movers, Oyo Living, the co-living vertical of Oyo Hotels & Rooms, scaled down from 2021 onwards. It gave up several properties, converted some into hotels, and currently operates only a few co-living centres. NestAway and HelloWorld faced challenges until their acquisition. Bengaluru-based Homigo, founded by three IIT-Kanpur alumni, ran into trouble after multiple tenants accused the startup of fraud and cheating.
When the pandemic hit, co-living was the worst hit among all real estate sectors. Being a highvolume, low-margin business, it became a survival issue, as funding also dried up.
SimplyGuest, another Bengaluru-based bootstrapped co-living startup founded in 2015, shut shop in March 2021. Co-founder Mayank Pokharna says that while the startup couldn’t survive the pandemic-led challenges, the co-living business model in general was being questioned. “Acquisitions of assets happened at unreasonable costs and landlords asked for fixed rentals. When operators underwrite the risk, and then they can’t fill the beds, they won’t break even. But they had scaled so much, it was tough to reduce costs,” said Pokharna, now a co-founder of ArtofCo, a co-living consultancy.
Stanza Living has over 70,000 beds in 24 cities. It raised $220 million in equity and debt.
When equity funding was drying up, Stanza raised $57 million in a debt round, but 100.5 72.2 even then it had said the funding was for growth and multi-city expansion.
“Stanza acquired properties at very high costs and expanded to too many cities. Their master lease agreements with property owners were at fixed rentals and they anticipated huge demand. But in the past year, they have been trying to rationalize costs, reduce losses and streamline operations. We have to see how it pans out,” said a person familiar with the matter who didn’t want to be identified.
A Stanza spokesperson didn’t respond to queries.
The good news for the sector is that demand has been strong since the beginning of 2023. The shake-up has led to consolidation and acquisitions. 128.7 9.06
THE LEARNING CURVE
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or three months last year, Gurugramheadquartered managed-accommodation platform Housr decided to pause its expansion plans, relook at its inventory, surrender a few non-performing properties, and cut losses.
After launching in October 2018, Housr, which has a co-living vertical for singles and Housr Homes for young couples and small families, primarily operated centres that were mid-income properties. Post covid, the startup tweaked its strategy and started
The co-living sector has undergone a sharp churn since the pandemic. Covid-19 halted the expansion plans of many co-living startups due to a sharp drop in demand.
Many early operators didn’t survive the challenges of an operationally heavy business, fund-raising and occupancy pressure, which led to doubts over the basic business model.
Demand has been strong since the beginning of 2023. And consolidation and acquisitions in the sector have given companies a chance to reboot and revive their fortunes. looking at very premium properties.
With many operators fighting for survival in the post-covid era, Housr acquired Bengaluru-based co-living company Stayabode in 2022 to enter the southern market. Currently operational in Gurugram, Hyderabad, Bengaluru, Pune and Vizag, it is soon launching in Chennai and Ahmedabad.
“We have carved a niche and want to operate super-premium properties, and the demand is huge. Earlier, everyone was focusing on the number of beds and offered budget-conscious low-quality inventory, similar to paying guest or hostel accommodation. There was also no focus on the bottomline and they blew up a lot of money,” said Housr founder and chief executive Deepak Anand.
In Gurugram, for instance, its co-living facilities charge between ₹35,000-₹70,000 per month for single rooms with food. Housr Homes, which offers fully-furnished serviced apartments, would typically charge ₹75,000 for a one bedroom-hall-kitchen.
So far, most co-living startups have largely leased regular buildings from owners, repurposed them for co-living and then leased them to multiple tenants. Now, companies are trying to create differentiated properties that are built for the sole purpose of co-living or renting.
“The strategy has to be supply-focused because the demand is there. Good-quality supply meant for rental housing or co-living is a challenge. That prevented businesses like ours from taking off,” said Suresh Rangarajan, founder and CEO of Colive, which was launched in 2017.
In 2023, Colive launched PropEx, an online marketplace that helps user buy or rent properties that are meant only for rental housing. PropEx and Colive would collaborate with a developer for a particular building, in which the developer can sell the units to individual investors. The PropEx platform would help in selling the units, and once sold, investors would give them on rent to Colive, which would lease them to tenants, manage the property, and earn a share of the rent.
Pokharna said that many co-living operators are moving towards a hybrid hospitality model, which is a mix of a hotel and a rental stay, offering both short-term and long-term stays. The larger focus now, however, is on growth in a sustainable manner, without burning too much cash.
Both HelloWorld and NestAway, for instance, have moved away from a top heavy verticalized structure to a flat structure with a portfolio management approach. Post acquisition, the sourcing of real estate, acquisition and onboarding of tenants is tech-enabled, with acquisition teams using data analytics for rent proposals to landlords and property owners. This basically means that at the land stage itself, the company can forecast the kind of rentals it can generate from a proposed property, the pace at which it can be filled up, and the kind of returns it can generate.
NestAway has also moved from lease and sub-lease to a service agreement model, where the risk of vacancy is reduced.
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o-living platform ZoloStays recently tied up with AxisRooms, a hotel distribution technology provider, where it will use some of its empty or unoccupied rooms for short stays of one-two days. Normally, under co-living, it has to be a minimum one-month stay.
Founded in 2015, Zolostays, which also provides student housing, has a co-living investment platform, Zeassetz, like Colive’s PropEx. Last year, Zeassetz helped sell about ₹300 crore of apartments on behalf of developers to investors in co-living facilities with the promise of assured rentals. Zolo manages the properties and leases them to tenants.
“We have reduced our losses, and post covid, while we are growing, the pace of growth has become more rational,” said Nikhil Sikri, CEO and co-founder, Zolo. The company also plans to raise a fresh round of funding.
For Guesture, which operates around 3,500 beds in two properties in Bengaluru’s tech corridor Electronics City, expansion has been slow since it was launched in 2014. It has signed two properties under the built-to-suit model in another tech hub, Whitefield, which will be ready in two years. Once built, the two co-living properties would have 5,000 beds or so. Several challenges still remain. Guesture founder Sriram Chitturi says it is difficult to compete with the unorganized rental housing segment on both pricing and the facility offered.
Co-living facilities that typically offer over 150-200 sq. ft of space per person or per bed are competing with those who give 40 sq. ft per person in a paying guest accommodation. Co-living players have to charge 18% goods and services tax (GST) above the monthly rent, while unorganized operators don’t need to charge any GST.
“Co-living being a new alternative asset class has not seen large investments from developers due to the lack of demand from buyers. The buy-to-rent model is still evolving here. Once SM Reits (small and medium real estate investment trusts) buy such rent-yielding assets, post completion, a major challenge for enabling supply of efficient co-living inventory will be solved,” Chitturi said.
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any startups have entered the rental housing space, offering a range of solutions that vary from co-living and student housing to more niche facilities.
Nomadgao, which operates co-working and co-living spaces in Goa and Dharamshala, targets remote workers and the digital nomad community. It plans to open up another property in Lonavala.
Settl, which launched in mid-2020, raised ₹10 crore from investors, including Zerodha co-founder Nikhil Kamathbacked venture capital fund Gruhas and We Founder Circle this year, when funding has been sparse.
The newer operators are more focused and cautious. “There have been more failures than success stories, and we are cognizant of that. We want to grow steadily, and instead of entering too many markets, we want to go deeper into each city. We have 4,000 beds and want to reach 8,000 beds by 2024-25. We are not chasing mad growth,” said Abhishek Tripathi, co-founder, Settl.
Another player, Union Living, which became operational in 2021, said it has focused on Mumbai and Pune given the huge market potential. Now, it’s planning a built-to-suit facility in GIFT City, Ahmedabad, and is also exploring Jaipur and Delhi.
Yello! Living, another new entrant, recently unveiled its first co-living facility in Whitefield, to tap into the tech professional tenant base.
“There is increased awareness of the mistakes made in the past. Operators are exploring different kinds of business strategies, and figuring out what is working and what isn’t. There is huge demand for such facilities, so we expect the sector to only grow from here on,” said Pokharna.