Student Accommodation Segment Issues

Student accommodation appears to be a very lucrative business from outer appearance due to the probable scale and profitability. Large number of startups and established enterprises entered the filed with investments worth billions of dollars over the years after the startup boom.

As someone who is closely associated with the segment, I would like to share my thoughts in to the segment as most of the players are struggling big time in terms of profitability and ROI. Even the most known VC firms could not read the opportunity appropriately in terms of realistic scale, key operational challenges due to various reasons.

?

I would like to highlight the key challenges being faced by the players with an intention to help existing investors and prospective investors to address these challenges appropriately during their recurring / new investment thesis in to the segment.

?

1.??? Market and Customer Centric Issues

a.????? Too scattered market with limited potential at each location: Colleges and Universities are spread across and at each location the number of students looking for accommodation is very small to make sizable investment.

b.???? CO-Live options: While the accommodation to working category can have CO-Live options, most of the student accommodation facilities need to have separate facilities for Girls and Boys due to variety of reasons. This involves additional deployment of resources towards infrastructure, man power and Security perspective making the business less feasible in terms of cost and return. Also most of these costs are difficult to recover factoring in to the pricing due to affordability issue.

c.????? Affordability at extreme ends: The affordability of students at both the ends of the economic scale. As the income of parents is spread, similarly the affordability of students also differs extremely from case basis impacting their ability to pay for the facilities. This will deter the service players to have affordable facilities by balancing between what students can pay for and what the facility needs to have.

d.???? Cultural issues: Students from few regions, prefer to stay in shared flats instead of student accommodation facilities. This curtails the market for service providers significantly.

e.????? Individual attention on service: Each and every parent expect that their child is provided with highest care, personal attention in terms of food, Cleanliness and Safety. This customization is challenging if we factor the required commercials and then aiming for feasibility.

f.????? Availability of buildings at places where there is potential is a bigger issue. Also, around colleges and universities, one finds college owned / leased student hostels. This leaves very less opportunity for outside players.

g.???? Distance from campus is another issue. The longer the distance the lesser is the feasibility. At the same time, longer the distance, lesser is the cost of the property and vice versa.

2.??? Operational challenges

a.????? Getting quality and reliable staff including housekeeping staff at a reasonable cost is a challenge. High attrition among them poses a major challenge in terms of ensuring continuous and predictable quality services.

b.???? Collusion of Service provider Managers with landlords to inflate rentals for a cut is a major issue prevailing though not every case can be applied here.

c.????? If food is outsourced, then timely delivery of food and maintenance of quality are the key challenges influencing the satisfaction of the students.

d.???? Most students leave the rooms with all the electrical appliances and equipment running even when none in the rooms resulting high cost of electricity and maintenance costs which further impacts the profitability of the facility.

e.????? Marketing of the brand meeting the local expectations of a highly fragmented market poses execution and cost challenges.

So, while one cannot drive a single brand and single strategy across the country, one can address some of the above challenges if not all with the below strategy.

1.???? Segmentation of the market offering based on affordability and cultural factors.

2.???? Decentralized marketing strategy by treating each and every state as a Profit Centre.

3.???? Extending more operational freedom to the local staff to decide on the pricing considering the cost structure applicable at the local level.

4.???? Restructuring rental contracts in to revenue sharing and time bound contracts with landlords.

Some of the challenges remain challenges with current scheme of things like;

a.????? Personal attention and care at student level.

b.???? Addressing varying individual security and care requirements within the Unit Economics stipulated.

c.????? Possibility of collusion of staff with landlords.

?

Zolostays Community COLIVE SUPPORT YourSpace .place MyRoomie.gr Investcorp asia NEXUS Trifecta Capital Start-ups

?

?

?

?