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Alternative asset classes set to change the way India’s workforce live and work

Gautam Saraf • 04/12/2019

India’s obsession with real estate as an investment choice is a well-documented, data-based history over the last decade. Immovable assets have been traditionally the go-to option for domestic investors.

While Indians’ preference for real estate continues to impact their investment choices even now, the ongoing decade has been a witness to the emergence of alternative asset classes in this sector that have remarkably changed the way the Indian workforce live and work.

It’s a behavioral change with the dominance of millennials in the workforce.

Millennials, who already make up almost 45% of the workforce in white-collar jobs, are interested in build-to-suit working and living options above anything, and that makes a world of difference in the investment world, too. As India transforms itself to meet the requirements of a large young, agile and on-the-go population by way of offering flexible working setups and quality living options, it is opening technology-driven alternative investment models for investors to thrive on.

Co-working: Flexi spaces to touch 140 million sq ft mark by 2025

India is one of the largest flexible workplace markets in the world, with nearly 27 million square feet (sq ft) of space and an operating capacity of 400,000 seats spread across six major markets, including Mumbai, Delhi-NCR, Chennai, Bengaluru, Pune and Hyderabad.

The speed of growth in this sector has also been remarkable. At nearly 13 million sq ft, co-working spaces in India claimed an 8% share in the cumulative Grade-A leasing activity between 2016 and the third quarter of 2019. Space take-up by flexible space operators has grown by 500% between 2016 and 2018, and is likely to grow by 25-30% year-on-year for the full year 2019.

While flexi-working spaces are predicted to touch nearly 140 million sq ft mark by 2025, the number of operators in the segment is likely to double in the next five years from the existing number of over 300 players. By the same period, the user base is also likely to grow to three million.

Co-working, as we see it, is the answer to traditional leasing, where companies have to pay huge security deposits but are still obliged to stick with a work place offering questionable quality issues. Since the co-working concept is a win-win situation for all parties concerned — the operator, the building owner and the occupier— it could also become popular in emerging tier II cities in India as the sector expands.

Co-living: Shared living to become Rs 1-trillion market in the next five years

As the traditional office is making way for co-working, the rental housing market in India is catching up on the sharing economy as well. The concept of co-living is gaining traction among young Indian professionals, unlike their predecessors who do not welcome the idea of change.

Based on the fact that India’s young population with a higher disposable income favors experience over ownership, we have ample reason to believe in the growth potential of the co-living segment. India is undergoing a digital transformation that is not only impacting how the young population work but also how they live.

The fact that nearly 40% of the Indian millennial workforce are migrants and their number is set to increase to 7 million by 2023 give us further reason to expect co-living would become more of a standard than an aberration at a time when demand pattern is changing continuously.

At a nascent stage as it is, the co-living market in India is likely to become a Rs 1-trillion market in the next five years, with 5.7 million beds. Shared accommodations provide millennials better affordability, convenience and a sense of community than the traditional and largely unorganized rented homes and hostels.

Betting on that growth, several global institutional investors such as Goldman Sachs, Nexus Venture Partners, Sequoia, Warburg Pincus, etc., have forayed into the segment in India in recent times. Much higher levels of activity could be seen here in the future because of the unmet demand, especially in the student housing segment.

In countries such as the US and the UK where student housing is in an advanced stage, investments in alternative asset classes help investors earn double-digit yields when compared to the other commercial real estate segments such as retail and office. This segment could bring investors in India double-digit returns of over 12% while returns in the commercial segment are restricted between 7-9.5%.

To put it succinctly, as India’s track changes are set to become more of a shared economy where community building and the need for utilization of resources have higher prominence than the tendency to own assets, we have every reason to believe that alternative asset class investments would stand side by side with mainstream options.

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