While the last three months have seen a drastic drop in demand and physical occupancy in co-living facilities across cities, as students and young working professionals returned home during the lockdown, it is uncertain when business is expected to return to normal.

The shake-up in the sector is also likely to spur consolidation, where larger, well-funded co-living startups may buy out their smaller counterparts, said industry experts.

Ismail Khan, chief business officer, Nestaway said force majeure has been invoked with many of its contracts with owners. While most of its property owners have agreed to temporarily end fixed rental payments, some owners are waiving off minimum rental guarantee for 3 or 6 months depending on mutual agreement.

“Organic demand, from students and migrants, is taking a hit. Before the lockdown, we were predicting a 5x to 6 x growth for the year in terms of demand from this category, but that has now slowed. A lot of the migrant population has moved back to their hometowns, and some 60-70% of our users are working from home,” Khan said.

Typically, operators have a fixed rental or revenue-sharing agreement with landlords. As tenants continue to leave the facilities to return home, they are either not paying rent or terminating contracts, as a result of which operators are renegotiating with land owners and asking for discounts, waivers or move to revenue-sharing rather than pay fixed rents.

Anindya Dutta, MD, Stanza Living said other than rental discounts, it has renegotiated rent obligations, in some cases for 12-18 months, with landlords assuming a gradual comeback of tenants in the next 2- months.

“Operating costs are going up because we have to modify certain common areas as per social distancing and operating protocol and sustaining margins is a concern. However, once things normalize, we believe the demand for branded managed accommodation will rise because of hygiene and sanitation factors,” Dutta said.

Expansion plans of most co-living startups are on hold as they focus on streamlining their portfolio of buildings and fill them up instead of acquiring new facilities.

“In both our co-living vertical (Hello World) and managed full houses, our expansion plans have been curtailed. We are currently holding onto the existing inventory and working with this. We used to have quarterly and annual plans and targets, now we have changed to monthly targets instead, to evaluate and respond to market situations better,” Nestaway’s Khan said.

With nearly 50-60% of the tenant base in co-living facilities being migrants, there is huge uncertainty in their return. Several multi-national corporations (MNC) have extended work-from-home for their employees until later in the year, and tenants are in no hurry to come back.

MiNest, which has been incubated by Shearwater Ventures and has three facilities in Gurugram and Delhi, is also remodeling rental contracts.

Rajeev Bairathi, CEO and MD, Shearwater said co-living was always a high-volume, low-margin business, but both volumes and margins are impacted. Operators will have to cut back on some services offered and pricing will also come down, given the pay cuts and job losses in the current scenario, he said.

Viral Chajer, co-founder and CEO, StayAbode said that there has been a big impact on revenue and margins, and fund-raising for most operators is tough.

“Occupancy levels have been coming down month-on-month. We expect occupancy levels to drop below 50% in August. This will also create an over-supply situation because demand will remain muted in the short-term,” Chajer said.

StayAbode is in the process of being acquired by Nestaway’s Hello World.

The pandemic has also questioned the ‘community’ factor in most co-living facilities. With physical distancing being the new norm, most operators said that residents will slowly move to single-sharing rooms, and contactless dining among other things will need to be introduced.

Suresh Rangarajan, founder and CEO, CoLive said that going forward, there will be better integration between co-working and co-living spaces.

“We expect business to pick up from October and we are gearing up to the changes it will bring, whether it’s more emphasis on single-occupancy rooms or providing ergonomic chairs to enable WFH,” he said.

Ankit Gupta, Chief Operating Officer & SVP – Frontier Businesses, OYO India and South Asia said with unpredictable job scenarios, simple contracts and flexibility tops the list of priorities for customers.

“…To ease the burden on the wallet, we are offering customers a deferred security deposit plan. Under the plan, residents can check-in without depositing security payment and can be submitted after completion of one month.”