working space amid startup boom

Tianli Holdings

14/12/2016 05:15

* Beijing encourages startups to drive new economy 
    * Co-working spaces in Beijing, Shanghai jump to over 500 
-JLL 
    * Co-working to make up 3rd of office space demand in long 
run-UrWork 
 
    By Clare Jim 
    HONG KONG, Dec 14 (Reuters) - Real estate developers and 
financial investors are capitalising on fast-rising demand for 
leasing of "co-working" spaces in China, as Beijing encourages 
startups and small businesses in a bid to offset slowing growth 
at traditional industries. 
    Developers, including China Vanke  2202.HK , Soho China 
 0410.HK  and Singapore's CapitaLand  CATL.SI , are renting out 
property space that hordes of self-employed persons or 
small-sized companies then share, company executives said. The 
lease deals with the startups are usually short-term and are 
done mainly through specialised operators. 
    Financial investors are also jumping in on the bandwagon, 
amid a growing belief that shared spaces deliver greater 
synergies by driving up innovation and productivity. Citic 
Capital, whose seven-storey shopping mall "Shanghai 189 Lane" is 
due to open later this month, will rent its top two floors to a 
co-working space operator. 
    "A new economy is here, we need to bring in different 
tenants  in the past the anchor tenant may be a gym, theatre or 
supermarket, but now it may be co-working offices," Citic 
Capital's head of real estate group Stanley Ching told Reuters. 
    Co-working's popularity is helping developers and financial 
investors tap new revenue sources in China and cushion the 
impact of the softening retail and office property sectors as 
the world's second-largest economy slows. But the highly 
cyclical nature of the startups business model also exposes them 
to new risks.  
    The number of co-working spaces in China has grown rapidly 
this year, with currently over 500 sites in Shanghai and Beijing 
alone compared to just a few in 2015, according to real estate 
services firm Jones Lang LaSalle. 
    The segment is expected to account for a third of the office 
demand in the long term from around 5 percent now, predicted 
UrWork, China's largest co-working space operator in terms of 
number of sites, which is just a year-and-a-half old and is  
valued at $800 million.  
    Leasing a desk for $260-$400 a month, landlords can often 
earn a higher return renting upper floors of a shopping mall to 
a co-working operation than to retailers, and get around a 10 
percent premium renting office space compared to traditional 
corporate tenants, said service provider Colliers. 
    As once-flourishing sectors such as steel and coal lose 
their lustre, China is facilitating the development of new 
industries and services to transform the economy. Cities such as 
Beijing and Guiyang in the southwest provide rental subsidies to 
startups, while Suzhou in eastern China plans to have 300 
incubators by 2020. 
    "China's freelancer market is not as mature as those of 
London, New York and Paris, but we have a lot of SMEs and the 
number is growing exponentially especially under government 
support, so there's great potential," said Mao Daqing, founder 
of UrWork, which aims to raise the number of co-working sites to 
60 next year from 40 across 10 cities at end-2016. 
     
    FLEXIBILITY 
    Even some mature companies, such as HSBC, Lenovo and 
Alibaba's Aliyun utilise co-working spaces. The spaces provide 
established firms with the flexibility to hire more contract 
workers or downsize labour. 
    Developers and others are lining up to tap co-working's 
potential. CapitaLand announced a collaboration with UrWork this 
month to provide co-working spaces in its properties in China 
and Singapore.  urn:newsml:reuters.com:*:nFWN1DX03O 
    Beijing-based Sino-Ocean Group  3377.HK  has signed an 
agreement with U.S. co-working operator WeWork, while Vanke 
rents space to operators including UrWork, and in some cities it 
also operates its own co-working business. 
    Kailong, backed by private equity firm Warburg Pincus, 
bought a Shanghai three-star hotel in 2015, refurbished it into 
an office building, leased it to WeWork and then sold it to a 
fund controlled by Tianli Holdings  0117.HK  last month for more 
than $74 million. 
    WeWork, which earlier this year received a $430 million 
funding round from China's Legend Holdings and its private 
equity group Hony Capital that gave it a valuation of more than 
$15 billion, has opened co-working sites in Shanghai and is 
expanding into Beijing.  urn:newsml:reuters.com:*:nL1N19Y01W 
    But the co-working business also brings risks, analysts 
said.     
    "The very nature of such short-term leasing exposes Soho to 
significant risk, as startups and SMEs are highly vulnerable to 
changes in macroeconomic conditions," Morningstar said in a 
research note, commenting on Soho China's co-working business.  
($1 = 6.8784 Chinese yuan renminbi) 
 
 (Reporting by Clare Jim; Additional reporting by Elzio Barreto; 
Editing by Muralikumar Anantharaman) 
 ((clare.jim@thomsonreuters.com; +852 2912 6653; Reuters 
Messaging: clare.jim.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA PROPERTY/COWORKING