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November 7, 2016

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Home » Business » Real Estate Special

The ‘sharing economy’extends to the workplace

By Cherry Cao | November 7, 2016, Monday | Print Edition

BIG Chinese cities are witnessing exponential growth in so-called “co-working space,” nurtured by government policies, an entrepreneurial younger workforce and prohibitive mainstream commercial rents.

Co-working sites offer shared workspace at low rents, typically in an atmosphere where people can share knowledge and sometimes collaborate in a friendly, relaxed environment. There are already 500 such sites in Shanghai and Beijing alone, even though the concept didn’t take off in China until early last year.

Co-working facilities are typically modern and airy. They usually provide complimentary Wi-Fi and beverages for tenants, with some sites adding on recreation areas, shower rooms or exercise rooms.

“Over the past 12 months, a huge number of co-working sites have opened, with many of the larger operators committing to tens of thousands of square meters of space,” said Joe Zhou, head of research for JLL China, which just released a report on co-working.

“Key driving forces behind the co-working boom include the government’s encouragement of mass entrepreneurship, the rise of the millennial workforce, the shift toward the sharing economy and the boom in technology,” he added.

The idea of co-working space caught hold in 2006, when Citizen Space, one of the first in the industry, was founded in San Francisco. Since then, the number of co-working tenants around the world has been steadily increasing and is forecast to reach 3.8 million by 2020.

In China, the concept dovetails nicely with government policies encouraging business creativity and start-up innovation.

The number of newly registered companies in China jumped 21 percent from 2014 to more than 4 million last year, following Chinese Premier Li Keqiang’s call for “mass entrepreneurship and innovation” at the 2015 World Economic Forum in Davos. That signaled official encouragement for small-scale start-ups, the prime target tenants for co-working spaces.

The new trend didn’t capture much attention in China until early 2015, when commercial real estate developer SOHO China first launched its 3Q co-working brand. Now the largest operator of co-working space in the country, the company first offered more than 600 seats in each of Beijing and Shanghai.

Competition quickly turned intense as other operators, both domestic and foreign, muscled into the market.

Rents vary. Some co-working operators offer seats by the month, week or sometimes even day.

At its most prime sites, naked Hub, the co-working arm of naked Group, charges around 1,800 yuan (US$265) a month for a non-designated seat in a public area and about 4,800 yuan for a designated seat in a room shared with a few others.

At SOHO 3Q, a designated seat in a public area in a site near the Bund costs as cheap as 1,600 yuan per month, while a small office for two people costs 4,160 yuan per month at the same location.

By contrast, Grade A office rents in CBD areas of Shanghai average about 10.5 yuan per square meter per day, according to JLL data.

Co-working space has become so popular that companies involved in the industry are rapidly expanding.

Beijing-based SOHO China plans to increase its overall capacity in Beijing and Shanghai to more than 15,000 “seats” by the end of this year, company President Yan Yan told an innovation summit in June.

Urwork, another Chinese co-working brand, was established in April 2015 by a former senior executive with China Vanke Co. It opened 11 sites and signed more than 30 leases in 15 cities in only one year, the South China Morning Post reported earlier.

WeWork from the US, one of the best-known international firms in the co-working industry, just entered into a partnership with Chinese developer Sino-Ocean Land to expedite its expansion in the Chinese market. The company will set up its Asia-Pacific headquarters in Shanghai, where it already has secured three co-working locations.

Although such sites are typically aimed at small start-ups and entrepreneurs who profit from a flexible, collaborative workplace environment at minimum cost, the concept of co-working space has also caught on with corporates as an alternative to the traditional office structure.

“About 20 percent of our tenants are multinational companies and the number is growing,” said Paul Hu, managing director of naked Hub, “Compared with traditional Grade A offices, co-working spaces offer greater flexibility at lower costs and promote interaction among people, which is helpful in fostering creative thinking and speeding up the development of new ideas, approaches or technologies.”

The company opened its first co-working facility in Shanghai in November 2015 and now has six locations in Shanghai. It said it aims to double its portfolio in China — covering Shanghai, Beijing and Hong Kong — to 12 sites by early next year.

Hong Kong-based Gaw Capital Partners, a private equity fund management company, announced on November 1 that it was investing in naked Hub, which is adding between 24 and 30 new naked Hub locations totaling about 150,000 square meters in the Chinese mainland, Hong Kong, Singapore as well as other key cities in Southeast Asia.

Co-working space’s flexibility and mobility are especially valuable for companies with high concentration of young workers, which is common in the IT industry and many professional services firms, according to the JLL report. There is an unmistakable “buzz” that users sense when they walk into a co-working office.

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