Co-living startups: Where the livin’ is easy

Moving to a new city is never easy. Especially if you’re young and just into a new job. One of the biggest challenges is finding a place to live: Rents are often unaffordable plus there’s the additional bother and expense of setting up house. If you don’t want to deal with starting from scratch, you could always choose to be a paying guest—of course, that means saying goodbye to your privacy.

Now, there’s another option: Co-living spaces, a whole new concept of shared accommodation that is changing traditional ideas about living. What exactly is co-living? Essentially, it’s furnished accommodation in a large house or multi-storey building with amenities such as hot food, WiFi, laundry services, and 24x7 security thrown in. It also includes access to common spaces such as lounges and reading rooms. The biggest draw? Cheaper rents. Zero or minimal security deposit, brokerage or furnishing costs. And utilities are included in the rent.

Simita, a 22-year-old techie in Bengaluru, is a big fan of co-living spaces. She’d been a paying guest through her college days; so, when she got a job a few months ago, she decided to look for a studio apartment of her own. But running a kitchen, taking care of day-to-day errands and general security fears soon took a toll on her enthusiasm for what she calls “independent living”. A friend told her about a co-living space near her office, but she initially thought it was just a fancy word for yet another PG accommodation. When she finally went to see the space, she was surprised: “It’s like staying in a hotel, with friends and acquaintances. People even get to know about vacancies in other companies.”

It’s clearly a millennial dream. At least a dozen co-living startups such as CoHo, NestAway, Stanza Living, RentRoomi, and Zolo have sprung up in India over the past four years to cater to this growing market estimated at $10 billion. These companies leverage technology to create app-based communities of residents who can connect with each other on the back of their common interest in areas such as books, music, and movies. The biggest advantage that co-living startups have is that their businesses typically have an asset-light model. Most of them lease out apartments, villas, and bungalows from property owners. The furnishings, white goods, and appliances in the properties are also rented out. Rents for a co-living space range from ₹6,000 to ₹20,000 a month on a sharing basis, and ₹18,000 to ₹25,000 a month on an individual basis.

“I think co-living spaces solve a very relevant customer problem. While the demand from students and bachelors is available, a suitable-standard, convenient and price-sensitive solution is required. Among cities, Bengaluru will continue to be a vibrant and robust market for co-living spaces due to the influx of students and young professionals in the IT industry from other cities,” says Amit Kumar Agarwal, co-founder and chief executive, NoBroker.com. Bengaluru-based NoBroker is a real estate search portal that connects house owners and seekers directly by eliminating broker fees. It operates in Mumbai, Gurugram, Chennai, and Pune.

Investors are pouring money into the business. So far, this year, co-living startups have raised $55.4 million from investors compared with $9.3 million in all of 2017, according to Tracxn estimates. In 2016, they raised $35.5 million. Gurugram-based student housing startup Stanza Living, for instance, raised ₹73 crore ($10 million) in a funding round led by marquee venture capital investor Sequoia Capital, to strengthen its position as one of India’s largest student co-living companies. This funding is in addition to ₹13 crore ($2 million) it had raised in its first round of institutional funding from VC investors Matrix Partners and Accel in November 2017. Stanza is not the only one. In February, home rental platform CoLive announced that it had raised ₹12 crore from Ncubate Capital Partners.

Business has been better than what most of the startups probably expected. When Uday Lakkar co-founded CoHo, one of the country’s first co-living startups, with Amber Sajid in 2015, little did he know that in less than three years his business would grow 4,900%. From what was essentially a 50-bed co-living space in Gurugram, CoHo is today a 2,500-bed chain across Noida, Delhi, Gurugram, and Bengaluru. The company now plans to have 10,000 beds across Pune, Mumbai, and Hyderabad by the end of 2019.

Lakkar’s premise was simple—young people, students or professionals need quality accommodation and are willing to pay top dollar for the right services to help them feel comfortable in a living space. While his business proposition involved having people stay in a building together, it was not what was essentially seen as a traditional paying guest accommodation play. “Co-living is not restricted to students, as many would like to believe. Two-thirds of our guests are professionals,” Lakkar tells Fortune India.

“We have grown 5x over the last one year.” Student housing, however, accounts for a

large chunk of the co-living market. Stanza’s business proposition, for instance, is to organise the student accommodation market by using processes and technology at the front-end. “The student housing segment in India offers immense potential but remains largely unorganised. We are determined to transform this segment by offering a professionally-managed co-living experience that mirrors international standards,” said Anindya Dutta, managing director and co-founder, Stanza Living, in a statement at the end of September, while announcing the fund raise.

Stanza Living operates in over 15 residences in Delhi NCR with a total capacity of 2,000 beds. The funding will enable it to unlock business opportunities that it has identified across important educational hubs, and grow the Stanza community across the country. “Student housing is an established asset class in the West and we believe Stanza, with its scaleable business model and strong economics, can create the asset class in India,” says Ashish Agrawal, principal, Sequoia Capital India Advisors.

The rise of co-living spaces is a part of the evolution of the sharing economy that has gained popularity in recent years. Look at the way Ola and Uber have disrupted the traditional taxi market. Or the manner in which WeWork and Innov8 are redefining the concept of workspace. And Airbnb, which is changing the face of the hospitality industry. Co-living startups also have enormous potential. With rising rentals and a perpetual shortage of good accommodation, it is expected to emerge as a strong alternative for the young population. Nearly 600 million people in India are under 25. With rapid urbanisation, a larger number of people are moving to metros and bigger cities for jobs and economic prosperity.

Already, the business of co-living has gained ground globally. Companies such as WeLive, The Collective and Common are building large communities with private living areas and shared common spaces. While it may be too early to predict the future of the co-living business in India, with more students and professionals struggling to find desirable accommodation, it may soon become the Uber of housing.

(This story was originally published in the November 2018 issue of the magazine)