Waves of change on the shores of Indian real estate
India’s economic and social transformation is changing the demand for real estate. From flexible commercial spaces and professionally managed rental housing to organized industrial development, the new real estate models will see further upsurge going forward.
Text: Sapna Srivastava
In the past few years, Indian real estate has diverged from the conventional residential, commercial, retail and hospitality asset class to new alternative asset classes such as shared living & working spaces to specialised housing models catering to students and senior citizens and cost efficient warehousing to service the demands of ever growing e-commerce industry.
In the times when residential real estate is going through a rough patch, the new asset classes offer an opportunity to developers to diversify into an income-yielding asset class that can potentially offer higher yields because of a favourable demand-supply scenario. As Peter Verwer, Chief Executive Officer, Asia Pacific Real Estate Association (APREA) mentions, “Indian economy is in transition and offers a roadmap to tremendous real estate development and investment opportunities. For instance, India is in the process of adding 115 million non-farm workers to its labour force up to the middle of the next decade, which is more than three times China’s urban workforce growth rate. India will require both traditional buildings and more versatile formats, such as co-working spaces, modern logistics facilities, business incubators, data centres and social infrastructure.”
Moving forward, the sunrise sectors like Student Housing, Senior Living, Co-Working and Co-Living and Warehousing will see a far greater traction and act as a natural growth driver for the real estate sector. What will be required are the new policy frameworks and regulations in keeping with these emergent asset classes to make sure they are safe and appropriate for use. The developers have realized the potential of the new business models and some of the large developers are already foraying in the new sectors of real estate.
Realty+ takes a look at these new development models understanding what drives their demand and the future outlook for these alternative real estate segments that are changing the landscape of Indian realty. Also read http://realtyplusmag.com/new-year-new-possibilities-realty-takes-a-look-at-the-realty-sectors-hopes-expectations-aspirations/
With a millennial population of over 400 million, student housing and co-living are attracting investors. Whereas, the robust rate of consumption by E-commerce and office occupiers is driving investor interest into warehousing and Co-working respectively. Investors are also seeking opportunities in the alternative real estate of senior housing to diversify their portfolios and for long-term growth.
Student Accommodation Sparks Developers’ Interest
Student Housing as a real estate asset class has just made a start in India, but developers have spotted the opportunity and are venturing in the segment due to the slowdown in the residential real estate space. Currently, India has approximately 34 million students in the higher education space, which is more than double the size of the advanced and large student housing markets in the West. Given the lack of college hostels, demand for student housing is to the tune of 30-60%, as per report by JLL India. The segment also provides an attractive rental yield of around 15-18% and companies like Vatika, Placio, Youthville, CoLive and start-ups such as Your Space, CoHo, WudStay are few of the companies operating in this segment and in future many established developers will join the bandwagon.
Moreover, the growing stature of Indian public and private universities internationally is attracting far more foreign students. Government has aggressive enrolment targets which will lead to about 4 crore enrolments in higher education by 2020, up from the current figure of 3.4 crore. Vineet Goyal, Founder, Youthville explained, “As the education ecosystem is rapidly growing in the country, student housing is getting fast recognition as an asset class with tremendous potential to grow in the coming years. Currently education institutes are able to meet approximately 20% of the student housing demand. To sum it up, student housing is undersupplied and has high potential to grow in demand. This comes as a huge opportunity for the organised players to exploit the platform by catering to the growing demand.”
The investors are also taking note of the high annual turnover rates since students tend to renew the lease every year for the duration of the course. Coupled with low credit risk because parents are co-signers, student housing is expected to be a signiﬁcant, permanent addition to the real estate market. With favourable demand supply scenario and high yield, student housing will be the next big thing in India and has immense of scope to be developed as an asset class for the realty developers.
Real-estate for the Sunset years
As per industry estimates, the population above 60 years of age in India will touch 240 million by 2050. Given the changing demography, the concept of senior living homes or retirement homes is witnessing gradual evolution.
There are approximately 98 million elderly people in India today with the growth rate of almost 3.8% per annum. This presents enormous potential for the senior living developments by the private developers in the country. Currently there are about 30–35 senior living projects in various cities but they accommodate only 0.0001% of the target population. Most of the projects are present in Western and Southern regions in and around metro cities and some coming up in tier 2 and tier 3 cities as well. North region is a close follow-up.
Bengaluru based realty developer Mantri Primus has leased 45-50 of its 75 apartments and sold about 80 apartments in its Senior Living projects. “We haven’t taken a real estate approach but a services approach, as these are not old age homes but a way to free up the retirement phase for individuals. The company has tied up with Apollo and Nationwide to provide doctors, nurses, caregivers and physiotherapists on the premises,” said Adarsh Narahari, Managing Director, Mantri Primus Lifespaces Pvt Ltd.
Entry of professional and reputed corporate groups developing lifestyle senior housing projects with a strong emphasis on service delivery has been successful in changing the once considered a ‘Social Stigma’ to an ‘Aspirational Living’. Established developers like Ashiana Housing, Mantri Primus Lifespaces, Tata Housing, Covai Properties, Eden Senior, Pranjape Schemes, Brigade Group and Vedaanta Senior Living are just some of the names in this segment. The senior living industry in India is poised for significant growth in the coming years. A PHD Chamber of Commerce study reveals that the senior housing sector in India is estimated to reach upto $7.7 billion by 2030. Not surprisingly, many more developers will foray in this emerging sector as the demand is increasing but the supply of quality projects is low as there are very few players in the market.
Monetizing New Era of Shared Workspaces
India, today, is witnessing a proliferation of start-ups and SMEs forging a palpable demand for co-working spaces in urban centres. Besides start-ups, established companies and expats are amongst those preferring to work out of co-working spaces.
India is at the cusp of a co-working revolution with several large players spread across the country like WeWork, Office Pass, Awfis, myHQ, Altf Coworking, CoWrks, Bangalore Alpha Lab, Garge, BHIVE Workspace, Bombay Connect, Co Life, 91 Springboard, Investopad and Innov8, amongst others. Several developers are planning on starting their own co-working offices to provide incubation spaces, or divide large floor plates for smaller occupants. Currently, NCR, Mumbai Bangalore, Hyderabad, Chennai and Kolkata & Pune account for a substantial amount of Co-Wirking office spaces. Major developers such as Embassy, RMZ, Hiranandani and others have tied-up with Coworking international/national operators.
The gradual rise in demand has prompted investors and developers to evaluate the segment’s potential as an investment and portfolio diversification tool. Many developers are converting completely or partially their commercial office spaces into a Co-working facility. Karan Virwani, CWeO, WeWork India believes that the shared office space concept will have massive demand in future. “In India, if you look at the demographic, we have about 800-900 million people below the age of 35. In the next 15-20 years, there is going to be this large influx of a young workforce and they won’t want to work in a traditional environment.”
According to data from CBRE, the co-working market has touched 13.5 million sq. ft. with 75% of co-working spaces located in the top three tier-I cities led by Bengaluru, Delhi-Gurugram and Mumbai. The year 2019 will see even tier-II &III cities having their own Co-working projects being launched or completed.
Meeting Supply Chain & logistics Demands
The grant of infrastructure status to logistics sector and the introduction of GST have resulted into well organised logistics and warehousing industry. The growth in e-commerce, FMCG, retail, auto and auto ancillary industries along with better supply-chain management system has also led to the increase in scope for this sector. Correspondingly, the supply of grade A warehousing space in this fiscal year has doubled to 30 million sq ft from 15 million sq ft in the last fiscal.No wonder, the developers are seeing a huge business opportunity in the sector. Dr. Niranjan Hiranandani, CMD, Hiranandani Communities said, “From a RoI perspective, it makes business sense to go in for such projects. From an investment perspective in terms of new business opportunities, growth of industrial and logistic parks will enable creation of a Hub and Spoke model, which will bring in cost efficiencies and optimize delivery time. The reduction in logistics cost from current levels to single digits as a per cent of GDP represents a huge potential, which will act as a catalyst for investments in this asset class. Industrial and warehousing assets will generate stable yields next only to grade “A” commercial office assets.”
Around 26% private equity investments in Indian real estate sector between January 2014 and January 2018 went into warehousing industry. About $3.4 billion (INR 22,100 crore) of institutional capital was poured in the warehousing sector during the same period. This has attracted a large number of real estate players and foreign investors to enter this sector. An example of rising investments in industrial parks in India is of Embassy Parks. Embassy Group has entered into joint venture with New York based Warburg Pincus to develop industrial parks and warehouses by investing $250 million. Similarly, Ascendas-Singbridge, a Singapore based real estate firm, will float a fund to raise $150 million to finance warehouses in India.
Developers and foreign players are eyeing the surplus land holdings for setting up warehousing and logistics facilities in emerging urban and semi-urban regions. The sector is expected to grow by 10-15% annually. In the long-term, warehousing and logistics sector will witness a rise in the investments not just in tier-I cities but also in tier-II and tier-III cities. Also read http://realtyplusmag.com/indian-general-elections-real-estate-rolls-the-dice/
The Collective Living Trend
Millennial believe in a shared economy with emphasis is on flexibility and sense of community. The young professionals shifting to cities to counter unaffordable property prices and home rentals are increasing looking for Co-living spaces, often termed as modern equivalent of boarding house.
According to Viral Chhajer, Co-founder & CEO of Stay Abode, one of the providers of co-living residences, close to 44% of the urban millennial prefer social residential space. “Co-living spaces focus on space utilization and creating more shared spaces over private spaces allows us to create a cost efficiency which makes these spaces more affordable for the residents. The rental residential market is pegged at over $25Bn in India and with the lack of a single brand with substantial market share; the market is ripe for disruption.”
Close to 32% of the urban households live in rented homes today. With rising costs of real estate this number is only going to increase. Globally, the concept of co-living has come of age, with players like WeLive Ollie and Common in USA, You+ in China and Roam in Bali and Tokyo, among others. In India, some of the major players operating across metro cities are Ziffy Homes, WudStay, CoHo , CoLive, Square Plums, Homigo, Fella homes, to name just a few. According to reports, over $51.14 million have been invested in 10 Co-living start-ups over last two years. Even foreign companies like US based Roomi, the rental and sharing house launched operations in India.
Co-living is changing the way we think about housing. It will soon percolate from millennial and youngsters to people from all age groups. No wonder, ranging from ultra-luxury to basic budget, collective living is becoming a big trend worldwide and is growing across population demography. And this is one real estate asset that we will be watching out this new year and the future course that it will take.