Authored by Anindya Dutta
As the world grapples with the COVID-19 pandemic, there’s a seeping sense of trepidation among consumers who’ve started to feel the hard-hitting economic impact of this unprecedented health crisis. Today, employment strains, job losses and limited growth opportunities are all realities which are leading to lower consumer confidence, reduced real incomes and limited discretionary spends. As a result, over the next 18-24 months, consumption behaviour is expected to lean towards de-prioritizing non-essential spends leading to a much-muted consumption story.
Like a host of other sectors, the Indian residential real estate industry is also expected to witness significant knock-on effects of this negative consumer sentiment in the foreseeable future. But one segment’s slowdown might play out as another’s growth.
There is strong merit to believe that with the looming economic uncertainty, consumer sentiment will shift away from big-ticket property purchase decisions and tilt in favour of renting propensity. Because reduced confidence principally limits appetite for large capital commitments or debt drawdowns by individuals.
Not just that, with education being a counter-cyclical segment; against the backdrop of a depressed employment market, people are expected to return to pursuing higher education opportunities in key education hubs of the country. The adverse impact and perception of international education avenues given the sharper impact which COVID has had on certain prominent overseas education markets will also add to a small but relevant uptick in domestic higher education.
Similarly, small businesses, especially in Tier 2 and 3 cities are under deep financial strain and several such businesses will be unable to weather the current economic slump. This will have a direct impact on white-collared employment opportunities in smaller centres, driving a significant white-collared migrant movement to Tier 1 cities/urban centres. The natural outcome will be an increased demand for rental accommodation in major hotspots across the country.
Having said that, as the rental accommodation market witnesses a period of green with much-increased demand, we believe, the professionally managed accommodation industry will be a top beneficiary and the preferred choice of living among the young millennial population – guided by factors including cost, convenience and access.
Tailwinds in favour of the Managed Accommodation Industry
Pressure on existing Quality Rental Accommodation Supply: Within the rental accommodation industry, increased demand for renting independent flats/apartments by a wider population mix on account of delayed property purchase decisions will put pressure on quality options and ‘crowd out’ access of young, unmarried consumers — a demographic that has traditionally not been a favoured tenant profile for most property owners. As a result, this will significantly limit options for the direct target audience of the managed accommodation industry.
Rationalised Spending: Rationalised spending is a new reality and will push people to rethink every aspect of their monthly consumption behaviour. In the case of smaller, standalone/independent houses, despite possibly low upfront rent, the additional costs incurred to access daily amenities heavily impact a consumer’s disposable income pool. On the other hand, managed accommodation operators have an all-inclusive rental model (food, housekeeping, laundry, internet etc) which will enable consumers to keep a conscious cap on the all-in monthly living expenses, without having to compromise on their lifestyle.
Health Risk of Dependence on External Service Ecosystem: While many people are learning to adjust to the ‘new normal’ way of life, young millennials’ professional and personal lifestyles is hinged upon their ability to outsource 'management' of daily household tasks so they can focus on their daily priorities. However, the rising reality of the post-COVID world will accentuate the risk of depending on current household management support (maids, cooks, delivery boys etc.), which exist as shared resources among multiple localities and houses, and are thus more vulnerable to spreading infections and diseases. With trust on this ecosystem getting severely dented, a close-knit managed living set-up with a dedicated service ecosystem offers a compelling and safe solution.
Active upgrading to high-quality, reliable managed living options: Hygiene and preparedness will continue to be top considerations, especially for young students and professionals who’ve been living in local, unorganised PG accommodations. Responding to the unprecedented health crisis, the well-established, national managed accommodation companies have redefined their operating procedures and developed a COVID Combat plan of action to be relevant to the needs of the consumers. This includes large-scale hygiene-maintenance measures, sanitation processes, personnel health checks, contactless operations (food delivery, housekeeping etc) etc that prepare them to mitigate the impact of the pandemic. In comparison, the local, unorganized hostel/PG accommodation operators will face existential questions around the ability and wherewithal to adopt sustainable, quality hygiene and sanitation measures.
Adoption of Work-From-Home Policies: As corporate lifestyle is expected to shift to greater emphasis on work from home/ flexible working opportunities, companies are exploring virtual workplace planning, partial occupancy at offices, team rotations etc. As such, people will have to effectively navigate between home and offices to create effective dual work environments. Hence, the demand for a seamless home-based work ecosystem conducive to support productive engagement with work (power back-ups, stable internet connectivity, timely meals, privacy etc) will become an essential need, which professionally managed accommodation firms are best-suited to solve with their state-of-the-art infrastructure and hospitality-led proposition.
Over the last few years, managed accommodation and co-living start-ups have gained currency as disruptors of the existing rental accommodation market. As a concept, they’ve prioritized evolving consumer needs. Today, there are business models in the sector which have proven their ability to adapt and scale. With the pandemic, they have an opportunity to review processes and solidify business contingency measures, while continuing to support consumer needs.
As consumption behaviours will be guided by cost (spending ability), convenience (amenities to fulfil living needs in a reliable manner) and access (high renting demand vs limited high quality, housing supply availability), branded managed accommodation operators will step in as economical, reliable, safe living ecosystems with ability to cater to diverse consumer segments across the country.
As we imagine moving to a post COVID19 world, managed accommodation providers will be measured on the flexibility, creative solutions, and value they are geared to provide consumers. The lessons learnt from this unprecedented socio-economic upheaval will herald not just rental real estate revival but set a new chapter for growth of the manged accommodation segment, guided by greater consumer receptivity and stronger business operating processes.
-Anindya Dutta is MD and Co-founder, Stanza Living. The views expressed are personal
First Published: IST