Co-living – the solution for unsold inventory in real estate amidst COVID-19 crisis
A JLL report has pointed out that developers are looking to monetise their unsold assets by offering it to co-living operators
One of the foremost hurdles faced by the real estate sector during this time is unsold inventory. According to a recent JLL report, real estate had an unsold inventory worth ₹3,70,000 crore in the top seven cities at the end of March 2020. Co-living is a viable alternative to address the issue of the unsold inventory.
Co-living implies staying together in managed accommodation. The arrangements in the co-living segment go beyond bed and breakfast arrangements, and are endowed with state-of-the-art amenities such as gymnasium, living room with television, Internet connectivity and much more. The millennials migrating to urban areas either for higher studies or for better career prospects have fuelled the demand for co-living spaces in recent years.
Dr Niranjan Hiranandani, president, National Real Estate Development Council (NAREDCO), said, “In the ‘new normal’ of a world in which we co-exist with COVID-19, there are many challenges which are from the pre-COVID-19 era; unsold inventory is one such
challenge, but the solutions will have to be in sync with the ‘new normal’. So, in terms of efficiency and being cost-effective, yes, co-living spaces will work out as one of the possible solutions to unsold inventory, so long as you understand the ‘new normal’ of a COVID-19 world. As long as appropriate social distancing discipline and norms are followed, co-living can emerge as a viable solution to unsold inventory.”
A JIL report has pointed out that developers are looking to monetize their unsold assets by offering it to co-living operators. This will not only increase the revenue sharing opportunities between the two but will also reduce the burden of unsold inventories. If real estate players can reach an agreement with co-living operators, it will be a win-win situation for both developers and co-living players.
“Managed Living offers developers the potential to earn higher yields/income on their assets as opposed to alternative options on account of efficient space utilisation, structural vacancy elimination, and ease of service bundling. A stable managed living asset can provide a 2X+ uplift on the rental yields to the landlords and developers. Collaboration between developers
and managed living players in this space creates a win-win situation for both entities and is a lucrative option to deploy inventory. Developers, today, are looking to partner with high-quality, well-capitalised managed living players who have a proven track record of successfully operating properties across years and markets in this business - track record of value creation and zero defaults are absolutely a must-have. Managed Living provides better use of space as compared to traditional units and has emerged as a sought-after option for the migrant millennial community, as it allows a perfect balance of privacy and seamless living,” says Anindya Dutta, managing director & co-founder, Stanza Living.
“While the world is still struggling to cope with the pandemic, safety and hygiene factors will lead to greater demand for professionally managed living spaces. An organised player offers structured operations and strict adherence to procedures, ensuring the best of hygiene, and convenient service experience is delivered at a compelling value proposition. Developers with inventories at prime locations are progressively exploring synergies with managed accommodation operators to fulfill the expected demand,” he adds.
According to a report by EY India, the student housing sector may consolidate in the next few months, with some smaller operators exiting, resulting in stronger operators with a sustainable financial and operational model. Going forward, facility management costs may increase marginally due to increased sanitation and hygiene mandates. Social distancing may see 15-20% capacity reduction. The escalation in student rentals and staff salaries may be deferred.
“For a co-living operator, it is a good opportunity as they don’t have to invest in the construction of the building. It’s a win-win situation for both the developers and operators,” concludes Siva Krishnan, managing director - Residential Services, JLL India.