EMERGING ASSET CLASSES

2 EMERGING ASSET CLASSES – THE FUTURE LOOKS PROMISINGFrom the ResearchHead’s DeskReeling from the global slowdown and dwindlingconsumer demand, the Indian economy is feelingthe heat with the GDP growth rate slipping to4.5% in the second quarter of 2019-20, the lowestin over six years. The real estate sector hasundoubtedly borne the brunt of the slowdownwith the liquidity crunch also hitting hard. It’sno surprise that the demand for residentialreal estate has been sluggish with housingsales registering an annual rise of only about5% in 2019. At the same time, capital returnson residential property in the top 7 cities havebeen limited to around 12% over the last fiveyears while rental yield remained in the rangeof 1-3%. This extended period of churning andsluggishness has shifted the focus from thetraditional asset classes to the emerging ones.Changing demographics and social mores,rising trend of entrepreneurship and digitisation,and the emergence of millennials have alsotransformed real estate consumption pattern andpushed the need for new segments.Co-living which has been prevalent underdifferent formats and names came under thespotlight with the entry of organised playersand inflow of institutional capital. Uniquecharacteristics such as plug-and-play living, useof technology, convenience, and communityliving are finding favour with millennials andyoung professionals. However, the need of thehour is to finalize the policy framework whichPrashant Thakurcan ensure the long-term and sustainablegrowth of co-living assets.The last five years or so have seen thegrowing popularity of coworking spacesamong start-ups, millennials, mediumand even large-sized businesses for theiraffordable infrastructure and flexibility.IT-ITeS driven cities such as Bengaluru,Chennai, Hyderabad, and Pune have lowvacancy levels between 5-10% for Grade-Aoffices, creating a sizeable demand forcoworking spaces. This emerging segmentnot only offers flexibility to work in anopen environment but also provide a costadvantage of up to 40% over traditionalcommercial offices. Despite the buzzcreated by coworking.Senior living projects may have hada presence for many years, albeit inan unorganized manner, but it’s onlyrecently that the stigma attached tosuch properties is gradually fadingaway. Improved healthcare systems andprecautionary measures have improved life

EMERGING ASSET CLASSES – THE FUTURE LOOKS PROMISING 3expectancy from 41.4 years in 1960 to 62.5 yearsin 2000 and 68.8 years in 2018. The populationaged above 60 years has already breached the100 million mark and is expected to be over 500million by the end of this century. Keeping inmind the growing future demand, the Ministry ofHousing and Urban Affairs (MoHUA) has drafteda set of model guidelines to develop and regulatethe retirement homes. To provide our elderswith a comfortable and dignified living option intheir golden years, there needs to be increasedparticipation from developers, institutionalisationof care givers and specialised service providersand backing by institutional investors.Another significant and growing demographic,students are defining the need for the studenthousing segment. For over 37 million students,there are just over 6.54 million hostel bedscompelling students to consider student housing.With the help of the ‘Study in India’ campaign,the government expects to attract 200,000international students to India. Compared totraditional accommodations, student housingcomes with a host of amenities and greaterflexibility relating to leasing terms, securitydeposits, and lock-in periods.The latest and most exciting emerging asset classin our report is data centres. The next industrialrevolution will be supported by big data, IoT, 5Gcommunications, and artificial intelligence leadingto a massive rise in demand for the datacentres. With 451 million active internetusers, 1,173.75 million mobile subscribers,rise in digital transactions and governmentmeasures such as Smart Cities Mission,and Personal Data Protection Bill, thedemand for data centres is likely to stayhigh. However, availability of uninterruptedpower supply, real estate obtainability atcompetitive prices, skilled workforce androbust policy framework are challengesfaced by the segment. Despite theseroadblocks, the data centre outsourcingmarket in India surely appears to belucrative and we’ve seen many developerstaking positions on this asset class.Our report attempts to chart the genesisand growth of these emerging asset classwhile exploring their future potential. Whilemost of these segments are in the nascentstage of development, the changing socioeconomic landscape of the country andproactive government policies is likely topush them towards future growth.

4 EMERGING ASSET CLASSES – THE FUTURE LOOKS PROMISING1Co-Living: OfferingRental Housing witha Lifestyle Quotient

EMERGING ASSET CLASSES – THE FUTURE LOOKS PROMISING 5Defining Co-living: Old Idea in NewPackagingAgainst the backdrop of the emerging ‘sharedeconomy’, the burgeoning millennial workforcein urban areas and metros has turned to optionsbeyond traditional owning or renting. Unlike earlierwhen ‘ownership’ was fundamental to success in life,today ‘sharing’ has taken the centre stage. While theidea has gained traction in the transportation sectorwith concepts such as pooled/shared rides, it hasalso made an imprint in the commercial real estatesegment under ‘coworking’, and ‘co-living’ on theresidential side.Call it a buzzword or a hot trend, but co-living isessentially an old idea in shiny new packaging. Theconcept of individuals co-habiting is not new and hasexisted for decades — whether it was the boardinghouses of New York or London in the 1940s or messhouses and PG accommodation in Calcutta andBombay during the same period. The concept ofco-living has existed in India for many decades underdifferent names. But the term co-living came underthe spotlight in the last few years with organisedplayers venturing into it and when capital startingto flow. Significantly, what has also changed todayis the emergence of purpose-built co-living spacesconstructed and/or managed by professional firmswho are viewing it as a viable business opportunity.For homeowners too, the low rental yields havepushed the need for new models higher than ever,especially as many of them are bearing EMI paymentsfor several years. Here, we attempt to map the genesisand growth of the co-living sector in India and exploreits potential as an alternative asset class in the realestate sector.Need for Co-living: EvolvingDemographics Driving ChangeWith the Indian residential real estate sector stuck ina vicious loop of increasing prices and tepid demandfor home buying, there is a massive stock of unsoldinventory which is around 6.5 lakh units in the top7 cities itself. Uncertainty and fluctuations in jobprospects have significantly altered the demanddynamics of the residential segment. In the lastdecade or so, careers have become more dynamicand millennials are not sure how long they want toremain in a job and in a particular city. They certainlydon’t want their residence holding them back if thereis a better opportunity that requires them to changelocations.Young professionals migrating to metropolitancities are not keen on the traditional rental modelthat entails inconsistent rents, high brokerage, nosylandlords and rule imposition. Instead of spending abig share of their wallets on renting their own spacethey are more inclined towards sharing living spaceat a fraction of that cost. Sensing this demand forshared rental accommodation, unorganised as well asorganised players have begun to create offerings tosuit the need of such migrant millennials in India’s topcities.Young professionals migrating to metropolitancities are not keen on the traditional rentalmodel that entails inconsistent rents, highbrokerage, nosy landlords and rule imposition.Instead of spending a big share of their walletson renting their own space they are moreinclined towards sharing living space at afraction of that cost.Socio-economic Factors PromotingCo-livingThe socio-economic landscape also favours theexpansion of the co-living segment, the demandfor which is primarily led by millennials and youngprofessionals. According to Statista, India’s medianage is estimated to be 28 years making us amongstthe youngest countries in the world and home toa growing middle-income segment. As per UNPopulation statistics and analysis by Deloitte India,34% of the country’s population belongs to the agebracket of 18–35 years, and it is this demographicgroup that will continue to drive the consumptionstory across sectors, including real estate. With theirintrinsic need for mobility, connectivity, and techenabled living spaces, millennials are expected tonot only drive but also redefine the manner in whichreal estate shapes up in the coming decade or so.Rising urbanization is another trend that will havefar-reaching ramifications on real estate demand andsupply in the coming years. As per urban statisticsreleased by the Ministry of Housing and UrbanAffairs, the share of India’s urban population hasincreased from 28% of the total population in 2001to 31% in 2011. This is further expected to increase to40% by 2030. As estimated by the UN Departmentof Economic and Social Affairs (DESA), India willhave added 416 million urban dwellers by 2025. Withour cities packed to the rafters, alternate options likeco-living are likely to gain traction.

6 EMERGING ASSET CLASSES – THE FUTURE LOOKS PROMISINGDemand Drivers: Millennials and YoungProfessionalsThe demand for co-living spaces in India is currentlydriven millennials and young professionals who arenot yet ready to put down roots but are willing totravel and work remotely across locations. Otherworking professionals such as entrepreneurs andfreelancers are also deferring big-ticket purchasessuch as a home at the beginning of their career andalso considering the erratic nature of their work.Moreover, they are open to using their disposableincomes on travel, food and other ‘experiential’lifestyle options. Factors like delayed marriage andchild-rearing are also creating a discernible change inthe consumption behaviour of recent generations.Even renting a private apartment in the commercialor educational hub is often beyond financial meansof most millennials. Not to mention that it involvesa lot of due diligence and paperwork too. In thiscontext, a majority of millennials prefer co-living overtraditional rental models as they do not have to deallack of standard practices for security deposits, noticeperiods and monthly rentals.The following unique characteristics of co-livingsetups have further found favour with youngconsumers:Plug-and-play LivingCo-living spaces are ideal for people who arelooking for complete flexibility and homes that arefully furnished, serviced, and managed. This formatalso cuts down individual costs by factoring in alloverheads into the rent while offering flexible andshorter lease terms including monthly lease options.Powered by Technology and ConvenienceCo-living operators use modern technology todevelop mobile apps which create an online platform,giving the residents access and flexibility andsmoothens communication between the tenant andoperator. Technology is also harnessed to createsurveillance, facial recognition software or biometricor keyless access to ensure the safety and security ofresidents.Privacy Amidst Community LivingCo-living operators are cultivating communities byplacing emphasis on organizing social activities,events and workshops. They also use personalityprofiling to match residents with other like-mindedpeople. Regular events that are focused on festivals,sports events, and weekend music, dance, yoga,aerobics are organised to engage the customers.A majority of millennials prefer co-living overtraditional rental models as they do not haveto deal lack of standard practices for securitydeposits, notice periods and monthly rentals.

EMERGING ASSET CLASSES – THE FUTURE LOOKS PROMISING 7Top Players and their FootprintPlayerYear of InceptionNumber of BedsPresenceTarget AudienceINR Rate/person/monthCoHo20155,000Delhi, Gurgaon, Noida,BengaluruWorkingprofessionals andstudents9,000 - 25,000CoLive201620,000Bengaluru, Chennai,HyderabadWorkingprofessionals6,500 - 30,000Zolo Stays201550,000Delhi, Gurgaon, Noida,Mumbai, Coimbatore,Bengaluru, Kota, Pune,Hyderabad, ChennaiWorkingprofessionals andstudents6,000 - 12,000Oyo Life201840,000Delhi, Noida, Gurgaon,Ghaziabad, Bengaluru,Mumbai, Pune,Kolkata, Hyderabad,Chennai, Jaipur,Coimbatore, MysoreWorkingprofessionals andstudents6,000 - 18,000Stay Abode20161,500BengaluruWorkingprofessionals andstudents13,500 - 27,0001,500BengaluruWorkingprofessionals andstudents14,000 - 20,000Square PlumsSource: Compiled by ANAROCK Research

8 EMERGING ASSET CLASSES – THE FUTURE LOOKS PROMISINGTypes of Co-living ModelsThe business potential in this segment has been significant and attractive enough to lure organised players toenter the market. Organised players distinguish themselves from their unorganised counterparts by their qualityof accommodation, quality of service offerings, tech-enabled applications for ease and convenience. Here aresome business models adopted by organised players:Lease and operatemodelThis is the most popularbusiness model due to itsasset-light strategy. It entailsco-living operators leasingresidential units or an entireblock from a landlord/property owner and subleasing individual roomsor beds to end-users. Thearrangement between theoperator and landlord is eithera fixed lease rental or revenueshare basis for a period of 3-9years. The onus of renovationor upgradation of the propertyis on the co-living player.Management contractmodelThis model involves long-termmanagement agreementsbetween operators anddevelopers or investors orproperty owners and allowsoperators to run their premisesas a co-living facility. In thisarrangement, the responsibilityof managing the returns lieswith the property owner whilethe co-living operator is simplythe custodian of the propertyand gets a commission foroperating the facility. In themanagement contract model,the end-user/tenant signs thelease agreement directly withthe owner.FranchisemodelAs the name suggests, thismodel entails the co-livingoperator lending its brandname to property ownersand unorganised PG/hosteloperators who intend to runa co-living business. With thisarrangement, the franchiseegets access to the technologyplatform, marketing capability,staff training, and vendorreach of the organised coliving operator. This model isapt for developers loaded withunsold inventory as it providesthem an alternative platform togenerate higher returns whilestill retaining their ownership.Assessment of Co-living Business ModelsBusiness ModelProsConsLease andoperate modelMinimises cost burden on operator.Equitable sharing of revenue.Better managed facilities and amenities fortenants.Contract with just the operatorand tenant is not as binding asone between tenant and owner.Managementcontract modelImproves the quality and facilities of theaccommodation.Lease agreement signed directly with owner isbinding.Onus of managing returns remainswith the property owner.Franchise modelPG/hostel operators get to upgrade theirfacilities and amenities.Suitable for developers looking to utilise unsoldinventory.Quality of accommodation maynot be uniform across differentfranchisees.

EMERGING ASSET CLASSES – THE FUTURE LOOKS PROMISING 9Global Scenario for Co-living: Snapshotof US & UK MarketsIn the global context, co-living spaces have growninversely with the decline in home ownership acrossmajor world cities. This segment has gained groundin Asian countries where urban density is pushingthe residential markets towards alternatives. In HongKong and Singapore’s exorbitantly priced housingmarket, which is out of bounds for many, co-living isan apt housing option. Across the Pacific Ocean inthe US, Start-ups like PodShare and Eddy are makingup for the shortage of affordable housing in citieslike San Francisco and Los Angeles by providingtenants a co-living experience. Even as the challengesassociated with affordability have considerablyreduced home ownership in younger population,renting has become destigmatised and flexible.Co-living is also catching up in New York, WashingtonD.C., Chicago, and Seattle where options are beingoffered by players such as Open Door, WeLive, Roam.With its growing student and millennial populationand exorbitant residential prices, the UK haswitnessed the emergence of co-living spaces asthe preferred solution for solving the housing crisis.The most well-known of these in the UK is TheCollective. However, many co-living projects are saidto be targeted at relatively affluent professionalsand don’t necessarily provide options for people onlower incomes families. Furthermore, the size of theco-living sector remains limited to a small share ofBritain’s build-to-rent private rental sector.Comparison with Rental and PayingGuest (PG) AccommodationApart from flexibility, maintenance and tech-enabledliving provided by co-living spaces, they also have a costadvantage over PG and rental accommodation. That’sbecause while more people share the rent, they alsoenjoy additional services such as daily housekeeping,laundry/ on-call resident facility management,curated meals, etc. To illustrate this, let’s consider theKoramangala locality of Bengaluru that is mushroomingwith the rental, PG as well as co-living accommodations.While renting a 1 BHK apartment in this area costsupwards of INR 17,000/month, the monthly cost for abed at a paying guest accommodation starts at INR8,000/month. Co-living spaces are priced at almost thesame level as PG accommodation, though the pricingcan go as high as INR 20,000/month depending on theamenities and facilities available.Co-living has gained ground in Asian countries where urban density is pushing the residentialmarkets towards alternatives. Operators are making up for the shortage of affordable housing incities like San Francisco and Los Angeles by providing tenants a co-living experience.Comparison of Co-living Spaces with Rental AccommodationCo-living PremisesRental AccommodationMonthly RentPaid to operatorPaid to landlordSecurity Deposit2-3 months’ rent6-10 months’ rentTenureFlexible11 months lock-inFlexibilityHigh: flexible terms of exitLow: stringent with a one-month noticeperiodCommon Area MaintenanceIncluded in rentNot includedUtility ChargesIncluded in rentNot includedMealsOptionalNot includedHousekeepingIncludedNot includedUse of TechnologyTechnological integration for servicesand convenienceNo tech interfaceAmenities and Social LifeWi-Fi, common areas and communityeventsExtra cost for amenities, no socialinteraction

10 EMERGING ASSET CLASSES – THE FUTURE LOOKS PROMISINGMapping Industry LifecycleCo-living may be a rage amongst millennials anddigital noma

ANAROCK PROPERTY CONSULTANTS PVT. LTD. . The Company has diversified interests across the real estate lifecycle and deploys its proprietary technology platform to accelerate marketing and sales. ANAROCK’s services include Residential Broking and Technology, Retail, Commercial,